South African Tax Residents Working Abroad

With effect from the 1 March 2020, South African working abroad will no longer get the benefit of tax exemption for earnings earned from a foreign source except for the first million rand in terms of revised section 10(1)(o)(ii) to the Income Tax Act No 58 of 1962.

What choices do South African Tax Residents working abroad have? Firstly, they can accept the changes in the law and pay the tax due on this foreign remuneration in South Africa. South African employers paying the foreign remuneration will have to withhold PAYE on the monthly salary but can consider the foreign tax paid on the same remuneration? There is still some debate as to whether the Fourth Schedule of the Income Tax Act No 58, of 1962 automatically allows the employer to take into account the foreign tax paid or whether a hardship directive needs to be applied for on behalf of the employee. Hopefully, SARS will add this directive application on line to speed up the directive application process. The employee should therefore not be out of pocket other than to the extent that the South African tax is more than the foreign tax paid.

Should the employer not be a local South African employer then then South African working abroad will have to register as a provisional taxpayer. Instead of only submitting an annual tax return they will now have to submit provisional tax returns at the end of August and February of each year. The estimate made in February must be accurate to meet the requirement of being within 80% of the final taxable income reflected on the income tax return. Failure to register as a provisional taxpayer or incorrect estimates comes with hefty fines. Once again, any foreign tax paid can be taken into account as a credit against the local taxes payable. On assessment the taxpayer will have to furnish proof of the foreign tax paid, and with different tax years in each country this will not always be an easy process.

The second alternative is for South African residents working abroad is to consider emigrating from South Africa. This decision cannot be taken lightly as any resident returning to South Africa within a 5-year period will be seen as a failed emigration.  Failed emigration have both Reserve Bank and South African Revenue Service implications. South African residents who plan to emigrate will have a Capital Gain Tax implication at the time that they emigrate. The need to disclose gains made on all assets from date of purchase to date of emigration. This has a cashflow implication as the assets would not have been sold yet the tax on the gains would have to be paid to obtain a tax clearance for the purposes of emigration.

The other problem that South African may have is where could they obtain residency in another country to ensure that the emigration is possible.  If South African are unable to get residency due to ancestry rights in another country the next alternative is to buy residency rights which does not come cheap.

We at WTS South Africa (Pty) Ltd can assist South Africans with the emigration process from both a Reserve Bank and South African Revenue Services perspective. Our global firm can advise on countries that offer emigration facilities and assist with the set up in these various countries.

March 2020 may seem like some time from now, but time runs away with us. We therefore suggest that you need to consider your options and start putting things in place for whatever choice you may make.