South Africa’s expat tax diluted after pressure pays off

South Africa’s National Treasury has reacted to pressure from expats all over the world, over its plans to scrap a tax exemption on overseas earnings and announced that a tax-free allowance of ZAR1m (£57,143, US$76,003) is to be introduced.

The changes were announced yesterday in Cape Town with plans to amend certain aspects of the draft Taxation Laws Amendment Bill coming after taxpayers living abroad explained the new law would “have a severely negative” financial impact on their lives.

The South African National Treasury said that it still plans to repeal a law that allows a tax exemption on income earned by South Africans working overseas. Two bills, the 2017 Taxation Laws Amendment Bill and the 2017 Draft Tax Administration Laws Amendment Bill, give effect to tax proposals announced on February 22 by former finance minister Pravin Gordhan at the 2017 National Budget.

If planned new legislation is accepted by South Africa’s parliament, South Africans who work overseas could be taxed locally for foreign earnings from March 1 2019.

However, yesterday’s joint report by the National Treasury and South Africa Revenue Service (SARS) accepted that for those on “relatively lower incomes” an amendment had to be made.

Public consultation

The amendment follows on, as reported, from a public consultation on the changes that closed on 18 August.

Addressing its parliament the National Treasury presented its responses to public comments it received during the public participation process.

It said that it had received 1 308 written comments to its draft bills, 760 which commented on the financial impact of the legislation, with most of the comments came from residents living in the Middle East.

Summarising the comments, the National Treasury said: “The tax will have a severely negative impact on finances and remittances to South Africa, especially for those on relatively lower incomes.

“This includes amounts remitted to family members to fund living costs in South Africa, investment in foreign income in some family run businesses and money spent in South Africa during visits.”

Tax exemption period

The prosed changes will now see the first ZAR1m of foreign remuneration to be exempt from tax in South Africa if the individual is outside of the country for more than 183 days as well as for a continuous period of longer than 60 days during a 12-month period.

“The exemption threshold should reduce the impact of the amendment for lower to middle class South African tax residents who are earning remuneration abroad,” the National Treasury said.

“The effect of the exemption will also be that South African tax residents in high income tax countries are unlikely to be required to pay any additional top up payments to SARS.”

Source: International Investment, by Gary Robinson