Come March 1 2019, every South African working abroad may be taxed in South Africa on their foreign employment income.
If you are a 25% taxpayer in the foreign country, those equivalent earnings in South Africa would be subject to 45% tax. The foreign worker may then face a further tax bill of 20% in South Africa.
However, South Africans working abroad can claim the relief of a Double Taxation Agreement (DTA).
They would have to obtain a certificate of tax residency from the overseas country, and the onus rests on them to prove that they meet the criteria of the DTA’s definitions.
A South African working abroad may escape the proposed amendment if:
- You’re not deemed to be ordinarily resident in South Africa;
- You’re deemed to be resident in your foreign country by virtue of the provisions of a double taxation agreement.
The amendments to section 10(1)(o)(ii) of the Income Tax act were published on July 2o, and the Taxation Laws Amendment Bill was published for comment and is open until August 18.
While Pravin Gordhan in his 2017 budget proposed tax on foreign employment income where such income was not subject to tax in the foreign country, the bill proposes a complete repeal of the exemption. This has the direct implication that all South Africans working abroad may be taxed in South Africa on their foreign employment income, subject to any off set of foreign tax paid.
It must be stressed though that this would not apply to all South Afrians working abroad.
South Africa has a residence-based system of taxation, so in general the government is able to tax your worldwide income if you are ordinarily resident in South Africa or meet the requirements of the physical presence test.
Many South Africans working abroad may still be deemed to be ordinarily resident in South Africa.
If you’re not deemed to be an ordinarily resident in South Africa, the proposed changes to the act would not affect you. The onus is on you to demonstrate this fact to the South African Revenue Servicw.
How a DTA could could provide taxation relief
Most DTAs contain specific provisions on the definition of a resident in order to settle which of the two countries (where a person may be seen to be resident in both countries) has the primary taxing rights over such person.
These are the so-called tie-breaker rules used to determine the tax residency of an individual where he or she may be deemed resident in two countries based on local legislation.
Once a person is found to be a resident of the overseas state in respect of a DTA, he is regarded to be sole resident in that state for taxation purposes. Thus, even if a South African working abroad may be deemed to be ordinarily resident in South Africa by virtue of the provisions of the Income Tax Act, if he meets the criteria in terms of the relevant DTA, he may be deemed solely a resident of the overseas state.
The proposed repeal of the exemption would not have any effect either, subject to that such individual complying with the relevant article dealing with employment income contained in such a DTA.
Mike Abbott is director at Sable International.
Oops! We could not locate your form.