Currently, South African tax residents working in another country for more than 183 days each year do not have to pay tax on income earned abroad.
However, former finance minister Pravin Gordhan announced in his February 2017 Budget that the double non-taxation was “excessively generous”. Despite being sacked by president Jacob Zuma in April, Gordhan’s proposals will still be implemented.
The Draft Rates and Monetary Amounts and Amendment of Revenues Laws Bill, published Wednesday, is open for public comment until 18 August.
It does not include the current exemption on not paying income tax on overseas earnings.
As a result, and depending on which tax bracket people fall into, tax will have to be paid on worldwide income, regardless of how long the person worked abroad.
However, tax credits will be applied for any foreign taxes paid, meaning that those working in low income tax jurisdiction would have a lower rate of tax to pay in South Africa than those in no income tax jurisdictions.
For example, if a person falls into South Africa’s 45% tax bracket and pays 25% tax in a foreign country, they would pay the 20% difference to Sars.
Those in non-tax jurisdiction would be liable to pay the whole 45%.
It is expected that the tax due will be calculated by converting the full sum earned overseas into rand using the Sars average exchange rate. The percentage difference would then be calculated and become payable.
In an interview with South African news site Biz News, Jerry Botha, managing partner of Tax Consulting SA, said that the law had been expected to come into force a year earlier.
“Pretty much all other laws would normally have been made effective when it was announced and we actually expected it was going to be effective on the 1 March 2018. That’s a bit of a leeway,” Botha said.
“The fact that they’re only doing it on 1 March 2019 onwards, clearly indicates that [Sars] knows this is a bit of a hot potato. They’re giving guys ample time to sort out their affairs.”
South Africans in the UAE and other Gulf states are expected to be among the hardest hit.
“They do collect a lot of taxes […] but they do it more as a consumption tax and not as an income tax […] and you can’t claim the VAT credit against your income tax […] because it’s a different tax,” Botha said.
“[In Dubai] their biggest fear is the cost of living that they incur. They’re not going to give you a deduction for all those cost of living items, the flights back home and the other taxes that you pay in the country.”
Botha highlighted a group in the region, headed up by expat Barry Pretorious, that has put together a petition against the new legislation.
Pretorious set up the South African Expatriates Tax Petition Group to advance the interests of expats earning income outside of their home country who might become liable under new legislation to pay tax in South Africa.