Much has been written about the looming introduction of a “new” tax on the earnings of South African tax residents working abroad. In actual fact South African tax residents working abroad have always been subject to tax on offshore earnings although there was an exemption from tax on all earnings if the taxpayer spent more than 183 days abroad in a 12-month period and this included one continuous period of 60 days during that 12-month period. The new legislation remains the same except the exemption is limited to R 1 million per tax year – anything earned above this amount is taxed per the South African tax tables. For example, based on the current tax rates a taxpayer earning R 2 million abroad would pay tax of R 430,000 less any rebates they were entitled to less any foreign taxes paid.
Tax residency and citizenship are two different statuses – with the new expat tax it is thus essential to establish your tax residence first to see whether it’s applicable. A typical example would be a pilot flying for a Middle East airline whose family live in South Africa and whose children go to school here. He or she would be a South African tax resident and therefore subject to this “new tax”. However, if the same pilot and his or her family had sold up in South Africa and relocated to the Middle East then this ‘new tax” would generally not be applicable as they are no longer tax resident. Once you are no longer tax resident then the new legislation does not apply.
Financial emigration is talked about as a solution to breaking tax residence. While this demonstrates your intention regarding tax residence this is not necessarily definitive – SARS looks at a number of factors, not only this!
In summary each individual case needs to be assessed before concluding on the applicability …or not… of the new law.