South African legislation governing expatriate tax exemption is set to change dramatically from 1st March 2020, affecting South Africans worldwide. This includes anyone who has permanently settled in another country.
 
Those who do not comply with the new requirements face stiff penalties and risk up to two years in prison.
 
To help expatriates understand their obligations, local tax firm, Tax Consulting South Africa, held special workshops on the topic in the UAE and Qatar.
 
“The outstanding attendance at these presentations demonstrates that expatriates are desperate to avoid falling foul of the new law,” says Claudia Aires Apicella, Head of Financial Emigration at the firm.
 
The general consensus after the events was, there are still many expatriates out there with their head in the sand regarding the change in legislation and therefore, failing to make proper arrangements to ensure that they are compliant and following proper procedure.
 
What’s changed?
The current Income Tax Act provides that if a South African in employed by either a local or foreign employer and renders services to them outside South African for longer than 183 days in any 12 month period, being continuously abroad for 60 of those days, their remuneration earned during that time shall be exempt from taxation by the South African Revenue Service (SARS).
 
From 1st March 2020, the conditions for exemption remain the same. However, only the first R1 million in remuneration will be exempt, with earnings above that threshold being subject tax at a rate of up to 45%, payable to SARS.
 
Now what?
It is imperative that South African expatriates get themselves acquainted with the law and how it will affect them and avoid being fish bait to the many dodgy investment and aggressive tax schemes being punted at them.
 
The lack of knowledge has also led to a number of expatriates being misinformed by SARS agents and inexperienced tax practitioners that, should they wish to return to South Africa upon retirement, they are required to reintegrate to the country, while remaining compliant. This is, however, untrue and misleading.
 
There are a number of options available that could assist in alleviating the tax burden of expatriates whilst ensuring that they remain compliant. These include Financial Emigration and Double Tax Agreements (“DTA”) signed between two countries. These are safe and compliant planning options that help expats lessen their tax burden.
 
Financial Emigration has been recognized and confirmed by SARS as a process in which one can cease their tax residency in South Africa, should one have a permanent or long-term intention to remain outside of South Africa on a permanent basis. On the other hand, the DTA is used in the instances where individuals who have the intention to return to South Africa or who are simply uncertain about their intention to return.
 
It is important to note, however, that these options are specific and need to be applied on a case by case basis.
 
The trip revealed and confirmed just how diverse the circumstances of South African expatriates living abroad are and are yet in the same boat when it comes to their tax affairs. Nevertheless, there is no one-size-fits-all solution to the amendment of the legislation.
 
All in all there are a handful of South Africans becoming more informed but there are many out there who are still looking for guidance in these uncertain times, which the workshops aim to provide. The firm intends to travel to other MENA countries to hold more workshops on the new expatriate tax law change.
 
ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook: Tax Consulting South Africa

Authored by: Thomas Lobban, Jean Du Toit & Jonty Leon from Tax Consulting SA
 
This week, on 26 November 2019, the National Assembly passed the latest tax bills, which is set to be promulgated by the President after it has been passed by the National Council of Provinces.
 
On the face of it, some concessions have been made for individual taxpayers, but these offer cold comfort in the bigger scheme.
 
Proposed Amendments
Before we get to the truly profound implications, it is important to note the following amendments:

• The tax exemption of excess contribution amounts paid by taxpayers in respect of retirement annuities received by them will now extend to annuities received from provident funds and provident preservation funds as well, from 1 March 2020;
• The ordinary rebates available to taxpayers who receive a pension in respect of a deceased spouse will no longer be taken into account when tax is withheld on these amounts, from 1 March 2021;
• Previously, the transfer of one’s retirement interest from a pension fund to provident fund or provident preservation fund was non-taxable from 1 March 2019, but will now be retrospectively treated as a taxable event, potentially placing these taxpayers in a non-compliant position; and
• Section 12J of the Income Tax Act provides a tax deduction to taxpayers, in proportion to their investment in qualifying venture capital companies, which is intended to promote economic growth. However, this will now be subject to a maximum allowable investment of R2,5 million for individuals, which means more cash-in-hand for government.
  
  

Tax Man Always Searching for His Pound of Flesh
At first glance, it appears that there are no profound amendments to the Income Tax Act or the Tax Administration Act that would raid the pockets of taxpayers, to generate additional revenue.
 
This is peculiar, since the prevailing budget deficit is a massive elephant in a room with grim economic prospects and a junk credit rating.
 
However, taxpayers must not be fooled. In the current economic climate and with SARS so far behind on collection, it is unlikely that the 2019 legislative cycle would not have been put to good use the drum up some more money.
 
Government is smart enough to understand that big changes cause controversy, as we have seen with the VAT rate increase or the amendment to the exemption on foreign employment income.
 
With no such amendments, were taxpayers truly given a tax break in light of the current economic landscape?
 
No Change Means More Revenue
In truth, the biggest change by far is not a change at all, nor is it actually found in the Income Tax Act or Tax Administration Act.
 
The Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2019 proposes no amendment to the tax brackets which prescribe the rates of tax applicable to individual taxpayers.
 
In a country with a relatively high inflation rate, this is a problem, since the salaries of employees generally increase in line with inflation. Where the tax brackets do not increase correspondingly, this results in so-called “bracket creep”.
 
In real terms, while this means that individuals are technically earning more, they are actually taking home less pay each month as compared to the previous year. In fact, in many cases taxpayers may be pushed into a higher tax bracket. The upshot is the taxpayer’s pay increase is wiped out by additional taxes.
 
It should also be mentioned that this is the second year in a row that the tax brackets have not been increased, which means that taxpayers will need to further reduce their cost of living for another year, in order to make ends meet.
 
While this will not necessarily affect lower income earners, it will certainly have a significant impact on the already overburdened taxpayers in the middle- and higher-income brackets.
 
This also affects those who will be withdrawing lump sum benefits from their pension interest. In this case, the special tax rates applicable to these amounts also remain unchanged.
 
This means that these persons will be forced to enter into retirement with less cash available to defray their cost of living – an unfortunate consequence of bracket creep.
 
Say Good-Bye to South Africa’s High Earners
The long-term effect of these changes (or lack thereof) can only realistically be determined over time.
 
This is an effective measure to generate revenue over the short term, but the question must be asked; how much financial constraint taxpayers are willing take before it becomes unsustainable and individuals simply decide to leave South Africa?
 
We have already seen a massive jump in South Africans deciding to leave the tax net by formally noting their non-resident status by financially emigrating from South Africa.
 
As it stands, National Treasury is already relying heavily on the higher earning segment of the individual tax base and measures like these forces the hand of taxpayers who are already contemplating their departure.
 
Ultimately, we lose important taxpayers and their descendants to the tax base permanently, which leads to less revenue for government.
 
Cunning as it may be, it would seem that government’s band aid is a temporary fix that will exacerbate a far larger problem. 

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook: Tax Consulting South Africa