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Attention all South African Expats

Tax changes that impact on each and every one of you are due to come into force on 1 March 2020.  These changes will have a significant impact on South African expats globally, but the largest effect will be on those expats working in low or zero tax jurisdictions.

For those of us living in the GCC, where current earnings are not taxed, this is of particular concern. There is no “one size fits all” magic bullet to address and resolve the issues that arise out of the proposed changes as every person’s circumstances are different.

Before one can develop any solutions, one needs to understand the proposed amendments and how they impact on you. The solution also needs to take into account the persons, short-term, medium-term and long-term goals. Areas to consider would include the following:

  1. How many days a year am I spending in South Africa?
  2. When will I be returning to South Africa (if at all)?
  3. What is the nature of all the assets I own and where are they located? (This includes worldwide assets)
  4. What is my current tax position in South Africa?
  5. Am I registered for tax in South Africa?
  6. Am I already in trouble with SARS?

There is limited awareness amongst South Africans of the proposed changes and what avenues are open them to minimise the impact or avoid the payment of these taxes in their entirety.

Some of the legislation is not yet in place, but many South Africans may already be in breach of existing legislation. It is thought that the majority of South Africans in the GCC have failed to lodge tax returns since leaving the South African shore.

What we do know

  1. Tax treatment will be determined with reference to a persons “tax residence”, which may be very different from one’s physical residence.
  2. The indications are that the first R1,000,000 (USD $67,000) of an expats foreign remuneration will not be subject to tax
  3. You will be required to submit annual tax returns
  4. South Africans working abroad are potentially liable to pay tax up to a maximum rate of 45% effective 1 March 2020

What we don’t know

  1. What will be included in the definition of foreign remuneration
  2. How fringe benefits will be treated e.g. free housing, transport allowances, free or subsidised schooling, medical aid. It’s most likely that these will be fully taxable.
  3. How end of service benefits will be treated
  4. Whether reporting obligations will be placed on employers

Risk of Non-Compliance

According to Peter Whatley, Tax Partner at GTAG, “Many expats have expressed the opinion that SARS will not be able to track them down and as such do not want to submit returns. This would be a big mistake.” South Africa is part of a grouping of countries that have agreed to exchange information in terms of Common Reporting Standards (“CRS”). In terms of CRS, global banks must now report on your citizenship and tax residency. A simple enquiry at governmental level would reveal where expats are resident.

Options Available

There are a number of choices available to South African expats, but the most appropriate option is determined by one’s personal circumstances and goals. As a minimum, however, a person needs to have their tax affairs in order. Whilst not exhaustive, basic options available to South African expats include the following:

  1. Submission of annual tax returns (includes submission of arrear returns from prior years)
  2. Becoming tax resident in a foreign jurisdiction and making use of Double Taxation Agreements (DTA)
  3. Financial emigration (FE)
  4. Acquiring foreign citizenship

There are advantages and disadvantages of going through with any kind of formal process such as FE, DTA or citizenship.

Undergoing the FE process is arguably the simplest, cleanest and most compliant way of ceasing tax residency in South Africa. It is a formal process through the South African Revenue Service and the South African Reserve Bank, which has been endorsed as the “right” way to go about it by South African parliament.

Generally speaking, one of the main requirements when deciding on FE is the intention to exit South Africa on a permanent basis. Intention can change and the process can be reversed at a later stage.

The advantages of FE are that it ensures that your taxes are fully compliant, and that SARS makes a decision on your tax residency status which cannot later be reversed on the same facts by SARS itself. This means that once you have financially emigrated SARS cannot then change its mind and start raising taxes on your foreign income. You however have all the power and are able to come back to South Africa and reverse this process yourself without the adverse impact of worrying that SARS may attempt to tax you on those years you had been financially emigrated.

The use of a DTA is only of any real benefit if the expat is employed in a tax paying jurisdiction, the assignment is short term in nature and the person has the intent to return to South Africa. In countries where no tax is payable such as the UAE, come 2020, South African expats living in these countries will be exposed to South African taxation.

When one comes to citizenship, this can be a costly exercise and needs to be carefully considered. In some cases, a person would need to renounce their South African citizenship, or may lose it entirely if they fail to comply with certain procedures.

If you require any further information or assistance relating to the above, we are happy to assist you.