Are you aware of a new tax law in South Africa which could result in you having to pay South African tax of up to 45 per cent?
There are new ‘expat tax’ rules which are due to come into force in South Africa next year which could result in South Africans, that are working outside of South Africa, but intending to return home, being exposed to tax in South Africa.
Who do the new rules apply to?
The new rules apply to South African ‘tax residents’. In broad terms, a South African tax resident is:
- an individual who is resident in South Africa; or
- an individual who is ordinarily resident in South Africa.
An individual is typically considered to be ordinarily resident in South Africa, if South Africa is the country to which that individual will return to after their period of time working overseas.
A South African tax resident is, subject to certain conditions, taxed on their worldwide income and gains.
What is the current tax position in South Africa?
The current position for South African tax residents working overseas is that the remuneration received for services provided outside of South Africa is exempt from South African tax provided that in a 12 month period:
- the individual is working outside of South Africa for more than 183 days in a 12 month period; and
- at least 60 of these days are consecutive.
When are the new rules effective?
From 1 March 2020.
What are the new tax rules for South African tax residents?
South Africans working overseas will be required to pay tax in South Africa, subject to the normal tax brackets, on their foreign remuneration once it exceeds R1 million.
There are detailed rules, but in summary:
- non-South African income of up to R1 million (approximately £55,000) per annum will be exempt from tax in South Africa;
- non-South African income in excess of R1 million will be taxable in South Africa, and subject to the normal South African tax brackets;
- South African tax of up to 45 per cent may be payable on the income in excess of R1 million;
- if you are paying UK taxes, you will be able to claim a tax credit in South Africa for the taxes paid in the UK to reduce your South African tax liability;
- any South Africans working overseas paying significantly lower taxes could be caught with a high South African tax bill.
Who is not affected by the change in tax legislation?
Any individual that has already ceased to be a tax resident in South Africa will not be affected by the new laws. That would have involved a conscious decision to no longer return to South Africa as your country of ordinarily residence.
How can we help?
We would be happy to introduce you to our colleagues in RSM South Africa who will be able to:
- calculate your potential tax exposure;
- provide advice on your reporting and tax payment obligations; and
- advise you on the deemed disposal option and quantify any capital gain exposure.
For further information, please contact Ian Ratcliff who will be able to forward your query to our contacts in RSM South Africa.