How will the Taxman come after South African Expats?

South Africa Luggae

As a South African expat in Singapore living in a country where the top tax rate is 22%‚ but your salary falls into South Africa’s 45% tax bracket‚ the taxman now wants to come after you to collect the difference of 23%.

The National Treasury recently published the draft tax law amendments for 2017, surprising us by proposing a far harsher tax treatment on people earning their livelihood abroad.

The draft law recommends that the exemption section 10(1)(o)(ii) be completely repealed

This means foreign employment income will become fully taxable‚ and the only relief that may be claimed is foreign taxes paid as a tax credit. For example‚ where you fall into the 45% tax bracket and pay 22% tax in Singapore‚ SARS will collect the difference of 23% from March 2020.

The current tax law determines that as a South African tax resident abroad, you must disclose your world-wide income to the South African Revenue Service (SARS) and may then claim an exemption on your employment income physically earned outside South Africa.

The then Minister Pravin Gordhan, announced in the 22 February 2017 Budget Speech that changes to this section were likely. The suggestion originally made was that the exemption should not apply where you are not being taxed in the foreign country where you live.

There are limited options for South Africans abroad‚ should this law take effect.

One alternative would be to properly emigrate‚ in which case there is a deemed disposal capital gains tax event. SARS probably anticipates this likely move‚ as the 2016/17 tax return now has a specific section to disclose this‚ which never previously existed.

Taxpayers looking at establishing tax treaty residency in another country will find that this is not as simple as getting a tax residency certificate there. Anyone who has been through this process with SARS knows how complex this can be.

Media comment suggests that this move by SARS could see more South Africans doing a cost estimate and possibly returning home.

Many South African expats fear that with full tax on international employment income‚ which is what is effectively proposed‚ coupled with the high costs of international work‚ coming home may be their only alternative.

Do you have any options?

It is important to remember that so far, we have only had a draft law which was open for comments until 18th August 2017. Following Parliamentary scrutiny, the changes are set to take effect from 1 March 2020.

AAM Wealth Solutions, working closely with Quilter, are examining closely the options open to South African expats in Singapore, namely:

  1. Establishing Non-Ordinarily Resident Status and ensuring that you do not fall foul of the Physical Presence Test
  2. Formally Emigrating financially from South Africa
  3. Accepting the changes and paying the additional tax bill
What about your assets outside South Africa?

Section 10 has never applied to Property, Property Income and Savings and Investments owned by South African expats. It is vital that you structure your wealth correctly to mitigate the impact of Income Tax, Capital Gains Tax, Donations Tax and Estate Taxes. If you do not, you could be in for a nasty shock as the automatic sharing of information on your wealth with SARS has already taken effect.

How can you find out where you stand?

At our forthcoming seminar on 21st September, in addition to reviewing how you can tax efficiently structure your wealth, we will be outlining the impact of the proposed changes and considering how each of these three options could work for you.

To book your slot at our seminar, please follow this page.

Sources:
https://www.iras.gov.sg/IRASHome/Quick-Links/International-Tax/How-account-holders-of-FIs-will-be-affected/
https://www.pwc.com/gx/en/services/people-organisation/publications/assets/pwc-south-africa-proposed-repeal-of-foreign-employment-exemption.pdf
http://www.sars.gov.za/ClientSegments/Individuals/Tax-Stages/Pages/Tax-and-emigration.aspx

Ian Black
Head of Wealth Solutions
AAM Advisory Pte Ltd

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