Ask a South African working abroad where he or she would rather be and the chances are they will usually say – back home in South Africa. Black economic empowerment legislation, a tough economic environment and high crime have all contributed to a wave of emigration. Making the move to foreign terrain more palatable for some Saffers is that they pay very little or no tax on their income elsewhere. But the South African authorities have threatened to tighten up tax laws that have made it possible for many individuals to work elsewhere without paying tax back home. That means it is going to become a lot more attractive to formally emigrate – or it might not be worth the trouble finding a job in another jurisdiction. Tax experts caution that the changes are likely, however it is worth waiting to see what the details are before making radical changes to your lifestyle or employment choices. Fin24 catches up with two tax practitioners for practical pointers on what is in store. – Jackie Cameron
A South African working in Dubai is worried about a proposal that could subject him to paying tax back home.
“I’m a South African living in Dubai and the new proposal on taxing those of us who live abroad in countries where we are not taxed on our income has us all very worried.”
The Fin24 user is referring to the 183 day rule that exempts remuneration earned by any person (resident or non-resident) for services rendered for and on behalf of an employer.
In this regard, if the individual spends a period of 61 continuous days and an aggregate 184 days outside South Africa, the remuneration derives for services rendered outside South Africa will not be taxable in South Africa.
However, Dubai, which attracts South Africans, is a non-tax jurisdiction so South Africans working there will not pay any taxes. The government is now trying to plug this loophole in order to get South Africans abroad to pay taxes back home.
I think you have good reason to be concerned. In essence, the exemption will be removed, thereby leaving South Africans subject to full SA taxation, with no credits because no local taxes otherwise apply.
However, there may be one important escape. South Africa cannot tax you unless either:
(i) you are a SA common-law tax resident (i.e. you view SA as your eventual home), or
(ii) you reside in SA for any significant period of time during the relevant tax year (i.e. are an SA tax resident by virtue of the days test).
Tracy Brophy, chair of the SAICA National Tax Committee, says:
The law still needs to be drafted in this regard, so the proposal is not yet effective. I recommend that SA residents working abroad obtain tax advice when the proposal finds its way into law.
Treasury told Fin24 draft legislation on the proposed tax will be published later in the year for further consultation.