Expat tax: what is it?
South African tax residents who worked overseas for more than 183 days (of which 60 consecutive) were exempt from paying income tax on their foreign earnings but that has now changed. It was suggested that this exemption be relooked in the 2019 Budget Review and the term “expat tax” has since been buzzing among South Africans near and far.
Here’s what you need to know about expat tax:
Expat tax is currently in effect
Expat tax has been effective since 1 March 2020. This might come as a relief to many young people who are working overseas, but you’re exempt from being taxed on your foreign income if it’s less than R1 million. “South African residents who spend more than 183 days in employment outside the country will be subject to South African taxation on any foreign employment income that exceeds R1 million,” Treasury says.
Qualification criteria for the exemption
According to SARS, to qualify for the exemption, you must be a tax resident of South Africa who earns certain types of income for employment services rendered outside the Republic. The exemption will only be available provided the specified qualifying periods are met and none of the exclusions applies.
Not all income qualifies for exemption under the Income Tax Act 58 of 1962, section 10(1)(o)(ii). The remuneration that qualifies is income received by or accrued to you “by way of” the following amounts, namely, salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, for services rendered.
Expat tax is strictly part of Income Tax legislation
Expat tax will target earnings only as it’s an amendment to the Income Tax Act of 1962. Should your company provide you with benefits such as accommodation, a company car or other add-ons, these benefits will, unfortunately, be taken into account when calculating your tax liability.
You won’t pay double tax thanks to Double Tax Agreements (DTAS)
The purpose of Double Tax Agreements between 2 countries is to eliminate double taxation. This is good news because it ensures that South Africans who earn more than R 1 million from work overseas will still only pay a maximum tax rate of 45% - as they would’ve had they lived in SA.
There is also an option of financial emigration where you’ll need to submit a formal application to SARS and the SARB advising them of your intention to formally emigrate. In some cases, it’s worth seeking the advice of a qualified tax practitioner with experience in this field to assist in determining the tax cost of emigration.
Visit SARS to learn more about the foreign employment income exemption.