South Africans living overseas may find themselves at the mercy of the National Treasury come 1 March 2020 when the South African Revenue Service (SARS) plans to appropriate up to 45% of SA expat earnings over R1 million via new tax laws.
Chris Hanley, a director at financial services company The Aliwal Road Group, said that his staff is already helping clients respond to upcoming changes in tax legislation proposed by SARS.
“The new legislation is ruffling a lot of feathers, leaving recent South African expats and those who are considering moving overseas uncertain about the best way forward and whether or not they are exposed,” said Hanley.
Even expats who are uncertain of whether they will be returning to SA in the future should consider informing the South African Reserve Bank and SARS that they are living outside South Africa permanently and formalising their financial emigration – but that they will be retaining South African citizenship.
According to Mr Hanley, when financial emigration is formalised, SARS then treats the situation as if those citizens are selling all their assets in the country (even if they are not). Capital gains tax will be due to SARS based on any gain made on the deemed sale of their affected assets – examples would be properties and unit trusts held.
“Unfortunately, capital gains tax is the cost of making a financial move out of the country,” he said, adding that after that point South Africans may settle in another country without any SARS issues hanging over their heads.
Even South Africans who are leaving the country for a working holiday or who work out of the country for up to 183 days per year and an uninterrupted stretch of 60 days will now be subject to the new laws. Prior to 1 March 2020 any foreign income would have been exempt from SA tax if the days criteria were met.
In instances where South Africans have worked in countries where there are double tax agreements in place, like the United Kingdom, South African tax owed will be reduced by the tax paid in the foreign country on the same income.
Hanley advises that everyone who has recently moved overseas and those strongly considering moving should get professional advice about the new tax implications.
“The new legislation is a bit of a hornets’ nest, but each individual needs to get personalised advice from a tax professional as there are so many different circumstances that require varying responses to adhere to the new laws,” he said.
Treasury and SARS decided to change the rules governing expat earnings after discovering that most SA passport holders and permanent residents who left the country did so without formalising their financial affairs. SARS has also increased tax audits on those expatriates who left the country and simply decided to ignore their taxes.
“Some expats have been filling in their tax returns incorrectly or not at all, submitting zero tax returns or indicating they were unemployed while earning salaries overseas,” says Hanley.
The 2017/18 South African tax return listed specific questions relating to expatriate tax status, with answers designed to trigger an automatic verification or audit process at SARS.
“Where questions have been answered incorrectly, this can now be regarded as a criminal offense, which will only complicate things for South Africans living outside of the country,” Hanley adds.