In 2017 the National Treasury and SARS announced that they would be introducing major changes in the tax exemption on South African expatriates.
According to Claudia Aires Apicella, head of Financial Emigration at Tax Consulting SA, the legislative amendment is set to come into effect on 1 March 2020.
It states that South African tax residents abroad will be required to pay tax to South Africa of up to 45% of their foreign employment income, where it exceeds the R1 million threshold.
“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,” said Apicella.
“This is in terms of the Tax Administration Act and with the help of the now fully active Common Reporting Standard (CRS).
“SARS amendments already implemented in preparation of the foreign income tax law change come March 2020 are as follows”:
- SARS Interpretation Note 16 (Issue 2) – released February 2017 – Section 10(1)(o) test
- SARS Interpretation Note 3 (Issue 3) – released 20 June 2018 – Ordinarily Resident test
- SARS Interpretation Note 4 (Issue 5) – released 03 August 2017 – Physical Presence
SARS concerned about expatriate non-compliance
Apicella said that research provided by Treasury and SARS showed that the majority of South African passport holders and permanent residents have simply left the country – without formalising their financial affairs.
“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 said.
“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,” she said.
While many expatriates may hope that SARS will drag their feet, the 2017/18 South African tax return already included targeted questions dealing with expatriate tax status, Apicella said.
“The questions may appear innocent enough, but we have seen this trigger an automatic verification or audit process.
“Where the question is marked false, this is a criminal offense, thus creating an even more serious problem,” she said.
One way to get around this tax is to apply for financial emigration, said Apicella.
This is a formal process with the South African Reserve Bank (SARB) to change one’s tax status from ‘resident’ to ‘non-resident’, she said.
“Financial emigration provides legal certainty on non-residency status for tax and exchange control purposes, as well as holding certain financial planning benefits such as the one of the few ways of cashing out your retirement annuity.
“When one emigrates financially they cease to be a South African tax resident and will not be liable to pay any South African tax on their worldwide income.
“They will, however, be required to declare any South African sourced income which may be taxable, such as rental income,” Apicella said.