Until March 2020, South African residents living and working abroad could apply for tax exemption on foreign income. This has since changed. Now, South African residents temporarily abroad are expected to give the South African Revenue Service a cut of their international paycheck and according to new tax laws for expats, only the first R1.25 million earned abroad can be claimed under the expat tax exemption back home.
When is expat tax applicable in South Africa?
As of 01 March 2020, expat tax will apply to South African residents working abroad. This means that the expat tax is currently in effect and the next income tax return you file should reflect this new tax liability.
The new expat tax laws for South Africans:
- South African tax residents abroad are required to pay South African expat tax of up to 45% of their foreign employment income where it exceeds R1.25 million.
- Although this threshold may seem high, the definition of employment income is broad enough to include allowances and fringe benefits that come with earnings.
- This means that the expat tax exemption threshold amount includes benefits that often form part of the employment packages offered to South Africans to attract them to work abroad, such as the provision of accommodation, security, and flights.
- These benefits can quickly exceed the R1.25m threshold, especially in the expensive countries in which expats often live.
Who is affected by expat tax in South Africa?
If you are a South African tax resident and you are an employee who renders employment services outside South Africa for 183 full days (which must include a period of 60 consecutive days) during any 12 month period, you will be affected by expat tax.
This means that after 1 March 2021, any remuneration you earned in excess of R1.25 million will now be subject to income tax in South Africa, regardless of whether you’re taxed on this income already in another country. That’s right. There is a possibility that you’ll be taxed twice.
How do you know if you’re a tax resident in South Africa?
To determine whether you’re a South African resident for the purposes of paying tax, the South African Revenue Service looks at:
- The ordinary residence test: if home is where the heart is, this examination seeks to identify where your heart returns at the end of your travels.
- If you fail this test you can still be regarded as a tax resident if they meet all three requirements of the physical presence test.
- The physical presence test: seeks to quantify the time you spend on South African soil, which should not exceed –
- 91 days in total during the year of assessment under consideration;
- 91 days in total during each of the five years prior to the year of assessment; and
- 915 days in total during those five preceding years of assessment.
Failure to meet any of the above three time-related requirements will mean a failure to satisfy the physical presence test. However, if you do happen to meet the physical presence test requirements but you’ve been outside the Republic for longer than 330 full days, you will not qualify as a tax resident, effective the day you physically left South Africa.
What happens if you are no longer considered a tax resident in South Africa?
It means you are not liable to pay expat tax on your worldwide earnings. You will still need to pay tax on your income sourced in South Africa.
I am considered a tax resident in South Africa. What do I need to do to use the R1.25 million expat tax exemption on foreign earnings?
If you’re a South African tax resident earning abroad, you may be eligible for the foreign employment income expat tax exemption contained in sec 10(1)(o)(ii) of the Income Tax Act if you provide one of the listed employment services abroad and as long as you have been outside the Republic for longer than 183 days in total during any twelve-month period starting or ending in a tax year, of which 60 days must be consecutive.
- This expat tax exemption can only be claimed on employment income earned from 1 March 2020 onwards.
- It is capped at R1.25 million but it is important to note that the exemption is not automatic.
- You will need to verify your eligibility for tax exemption, which will require you to declare all foreign income in your South African tax return, including the amount on which you intend to claim expat tax exemption.
FinGlobal: tax specialists for South African expats
Still confused about expat tax and whether or not you’re expected to pay tax on your worldwide income? FinGlobal is here to help. We’ve built a solid reputation as tax experts for South African expats, helping to navigate the tricky waters of tax compliance. We’re ready to answer any questions and provide guidance on:
- Tax refunds
- Tax clearance certificates
- Tax emigration/tax exit
- Foreign exchange
Contact FinGlobal today to get your expat tax compliance sorted – no hassle!
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