High-income South African expats are set to be taxed nearly half their income

23 January 2019 Consultancy.co.za

Stringent regulations are set to come in place for South African expats who earn more than R1 million, with experts predicting that they could be taxed as much as 45% of their income by the government. According to a senior executive at Tax Consulting SA, these regulations will come into effect starting March this year.

The South African government appears to be trying every avenue to reduce the pressure on its treasury and revenue department, both domestically and internationally. The government introduced a tax hike early last year, primarily to mitigate the loss resulting from tax defaults across the country.

South African Revenue Services (SARS) – the government entity responsible for revenue collection and policy making – introduced stringent measures last year to ensure tax compliance, including the warning that defaulters will be called out on a public platform. SARS has already named some major defaulters.

High-income South African expats are set to be taxed nearly half their income

Tax Consulting SA has been monitoring these policies, and offering its analysis on the pros and cons of these increasingly stringent regulations. Claudia Aires Apicella is the Head of Financial Emigration at Tax Consulting South Africa, and has predicted that SARS will now turn to expats to help boost its revenues.

As of 1st March this year, Apicella expects expats abroad with an income exceeding R1 million to be taxed as much as 45% of their income. The strategy is primarily aimed at individuals and firms that have simply moved abroad to avoid the increasing tax rates within the country. 

A number of these cases not only involve the act of leaving the country, but also display evidence of illegitimate activity. While some did not consider it necessary to submit tax returns in South Africa, others submitted zero tax returns to SARS. In some cases, individuals even indicated that they were unemployed on their tax returns while earning expatriate salaries,” said Apicella.

“This has prompted not only a law change, but also a stated SARS tax audit focus on those expatriates who have left and simply decided to ignore their taxes,” she added, continuing on to explaining the measures being taken by SARS. “With the commencement of the new law fast approaching, SARS has begun prosecuting taxpayers that are non-compliant and, in some cases, has the option to imprison the offender up to a period of two years.”

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South African companies to be amongst the worst hit by expat tax

16 April 2019 Consultancy.co.za

As the realities of the proposed expat tax gradually come to light, experts at financial consultancy Tax Consulting SA have indicated that the new policy is likely to hit companies and employers harder than it is expats themselves, particularly domestic organisations that send employees abroad. 

So far, the focus has been on the struggles in store for wealthy South African expats, who might be taxed a considerable amount of their income if they earn in excess of R1 million. As a result, South Africans living abroad are losing their competitiveness on the job market, given that they require a larger cushion.

Now, more analysis has revealed that the scenario is equally bad for South Africans working for domestic firms, who are sent abroad on assignments. As per the new proposed policy, if the foreign assignment runs for more than 183 days, then the employee is subject to the heavy expat tax.

South African companies to be amongst the worst hit by expat tax

Calculations have placed this tax as high as 45% of foreign income in some cases. Rather than ensuring compliance, which is the purpose of the policy, the new tax is at risk of deterring South Africans from accepting foreign assignments, which runs against the current goals of the government.

The President has made clear his goals of opening South Africa’s doors to foreign businesses. Nevertheless, trade and collaboration with foreign firms is a challenge if South Africans are not predisposed to working abroad. Analysts at Tax Consulting SA have been watching the developments closely, and have warned of this danger. 

“The reality is that with this amendment, any additional cost would ultimately have to be borne by the employer, as no expat would accept an assignment without these benefits and, to ensure that these assignments remain lucrative, the employer would have to increase the expat's package,” said the firm.

The new tax is also likely to affect other sections of South Africans living abroad, including those who are permanent residents in another country but continue to have assets in South Africa. Others who will be hit include permanent residents abroad who have not yet settled their finances in South Africa.