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Expat tax: Treasury looks to soften legislation as concerns flare

Options include exempting earnings up to a certain amount.

The proposed repeal of the tax law exemption on foreign employment income for South African expatriates working abroad has caused tremendous stress and panic among everyone affected. Encouraging however, is that National Treasury has been actively engaging with taxpayers hereon and appears to be seeking a well measured middle ground. 

Read: Expat tax could be ‘final straw’

Time will surely tell, but my hopes are that this may very well become a good news story for South Africa, when we see the evidence of professional acumen being applied to information gathered during the consultative process.

The tone was set by the chairman of the Standing Committee of Finance, Yunus Carrim, who asked on August 29 that National Treasury must consult with affected parties and revert to the committee with some sort of a “deal”. Sessions held on the matter with National Treasury on September 4 and 5, in Midrand have been very constructive.

Ensure a progressive tax system

The approach of National Treasury, under the guidance of Christopher Axelson, emphasised the imperative to protect the interests of South Africa and to ensure a progressive tax system, aligned with international standards. South Africans who venture internationally must be encouraged to come back to South Africa, as there are dire skills shortages in certain industries.

This view is strongly supported by the existing Department of Home Affairs Critical Skills categories for work visa purposes. Expatriates who want to return home for retirement must also always feel welcome to do so.

The concerns raised by expatriates, however, have been studied by National Treasury and many points have been conceded as valid. National Treasury has proposed various options to soften the legislation, which will go a far way in addressing the Expatriate Petition Group concerns.

These options include considering extending the current 183-and-60 days test to a longer period(s) to qualify for exemption and/or exempting the earnings up to a certain amount. Written submissions hereon have been invited, albeit subject to tight deadline, as parliament feedback is scheduled for next week.

The good news

The ball is pretty much placed back in the court of the South African expatriate community, to comment on these options. After a couple of hours, well over 2 000 responses have been received on Barry Pretorius’ Expatriate Tax Petition Group quick poll.

There will no doubt be some tax change announced this year and it will probably be legislated late this year or early next year, effective March 1 2019. The key is that these changes must not make South African expatriates uncompetitive compared to their counterparts in other countries, and weaken South Africa’s position as the gateway to Africa.

The good news holds that National Treasury /Sars remain in the hands of a very competent technical team. The process to date has shown that genuine consultative outcomes remain very much possible in South Africa, where correctly approached and strong emotions kept in check. That is perhaps what we should be known for globally, as focus on our similarities have always yielded better results than any differences.

Jerry Botha is managing partner at Tax Consulting SA Administrator.

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Very seriously reconsidering our move back to retire after a lifetime of work overseas. Time will tell. What adds real insult to injury is the way way we see our potential “contribution” squandered by what is going on with state capture in SA. The figures quoted are simply astounding, seriously beyond my comprehension. So on the one hand treasury wants to potentially penalize us for coming back ( the wife has started part-time teaching at the university. Most returning expats have this desire to contribute it seems) but on the other I see astronomical sums being syphoned off to corrupt politicians and their families and hangers on. I’m buggered if I am going to play this game. Pass potentially punitive legislation and we go off radar, guaranteed. I’ll take my marketable skills and positive attitude and make an exit in double time.

I support Treasury in nailing Mr Oil rig man who works for 183 days in a year outside SA yet his family lives in SA and utilise the infrastructure on a daily basis like all other South Africans do. Yet we have to carry the can for them and their families. Plus what they earn outside SA they can keep outside SA. I say make them pay! They always argue that their families pay VAT in SA but in addition to the 45% income tax which I pay, my family also pay the VAT, rates, fuel tax, sin taxes, tolls etc without any relief. Why should there be any distinction between me and Mr Oil Rig man? If he doesn’t want to live here he can emigrate, but if he is a SA resident for tax purposes he can pay his share like everyone else – finish and klaar! But the good news is that even though Treasury will make some concessions, they aren’t backing down on this one.

I agree, very good point, which begs the question What about the SA expats working outside South Africa with dual citizenships, without any family that they support?

My aren’t we a bit jealous? Mr. Oil Rig man and his family pays all the usual consumption taxes such as VAT, rates, fuel levies, etc.

Fact is he sacrifices half the year away from his loved ones in order to provide a better life for them. He, being the breadwinner, doesn’t enjoy any of those services so why should he pay tax?

User pays principle should apply and he pays tax on what he and his family uses. If you could find him a job in SA that is within his skill set, pays accordingly and allows him to spend every day with his family I’m sure most would jump at the chance.

If “the user pays” principle applied then none of us high paying taxpayers would have to pay anything since we use very little from government. We all use private education for our kids, private medical services and private security. However, the tax law imposes the tax regardless what the user uses.

I agree with your sentiments, although not with the venom 🙂 and also for other reasons (too).

The bulk of the tax I pay, I do not get services in return –> it goes towards social (redress) payments). Why should I pay for them, and another South African, simply by virtue of where he makes his money, not pay them?

(Don’t even get me started on the 3rd leg of where my payments go: graft and corruption…)

Mr. Oil rig man (and Mr. Security in Iraq, Ms. Flight attendant in Doha, Mr. Bar man in London, Ms primary school teacher in Saudi Arabia etc.) will simply not be able to carry on working if he/she gets taxed. Those types of jobs are simply not worth the crappy life that comes with it. So, what will happen is that South Africans will not be able to compete with other countries in certain job markets and the unemployment will go up even more (only 2 or 3 countries in the world tax expats on employment income).

And what about the tens of thousands of expats who live permanently outside SA (a large portion of them due to AA and BEEEE) with their families but still have plans to return one day and continue to invest heavily in SA with their expat money (buying property etc…) should they be taxed? Maybe they spend one or two weeks in a year in SA. This is like tourist money, they do not use any services but still bring money in to the country. They will all simply immigrate or at least financially immigrate and their money and skills will be lost to SA forever.

Your kid or your friends’ kid might one day want to get some international experience, guess what he will not be able to as he will have to pay extra SA tax on his little crappy starting salary after already paying tax where he lives (due to the useless Rand he will always fall in to a higher SA tax bracket and will have to pay the difference). This will again make it almost impossible for him/her to cover his daily first world high living costs.

You get my drift? This will have a very big negative effect on all SA citizens not just the expats. The stupidity from government for even considering this is much worse than the stupid law they implemented that you need 100s of documents if you travel with your children to SA because some government official thinks that SA has a big child trafficking problem at the airports.

With respect, you don’t understand what Treasury proposes. Say you work offshore in a foreign jurisdiction and pay 0% tax but in SA you would pay 45% as per the tables, then you will pay the 45% like any other South African. If however, you work in a foreign country where you already pay 42% employees tax then you will get a credit for the 42% paid and only pay in the difference of 3% in SA. The idea is to level the playing field for all South Africans.

The problem is that the guys that stay in SA for 6 months and work offshore for 6 months are far in the minority and they seem to be the main target here. Most expats (and I am one of the thousands) live outside of SA full time and only go back for a week or so holiday. These guys are being forced to financially immigrate. Cost of living outside SA is to high and you can not afford to loose half your salary (if you are in the UAE and have to pay 45% tax in SA and get nothing in return). Treasury will get some capital gains tax in the short run but SA will loose big time in the long run (loss of investment, loss of international experience).

Think of it like this. If the question was rather: “Are South African Citizens allowed to work outside of SA?” as this is essentially what it comes down to, would you still feel so strong about it?

my nephew works overseas on a month on, month off basis.
He was furious about the tax proposal.
Asking him why he answered – (1) I bring money back into the country (2) I don’t use the infrastructure (3)I’m away from home a month at a time (4) look at the corruption, what do I get for my tax?.
my answer – (1) Guess what? I speculate overseas (forex, stocks,etc) and I bring money into the country when I withdraw profits for an income. And your father has a company which works for an overseas company, so he brings money into SA. The two of us must pay tax on the foreign money we bring back (2) your wife and kids use the infrastructure and you use it when you are on your month off (3)yes and the month at home you are at home full day to go on a trip with your wife etc. You actually get 6 months leave for 6 months work but your farther only get two weeks leave for a year’s work(4) that affect all of us and that is not a reason to be exempt from tax. I agree though that all the taxpayers of SA must stand together in a sort of a class action.

Now somebody tell me – why must me and his father pay tax and not him?
Agreed, definitely give him credit for tax he paid overseas.

Jnrb, you clearly have not worked outside SA. I live with my family outside SA (as an expat) and only return to SA for holidays (say 3-4 weeks per year). I only enjoy the roads and partially make use of infrastructure funded by tax money, etc. during my holiday period. Why should I be taxed as a normal South African living in SA; it simply does not make sense. And as you may not be aware, living abroad comes with additional expenses that you will not have (cost of living often higher, keeping ‘business’ running in SA also comes at a cost, etc.).

If this is still not clear to you, answer this simple question: “Would you be happy to pay for a meal at a restaurant if you are not getting the meal?”

As I explained, if you work in a foreign country where you already pay say 42% employees tax then you will get a credit for the 42% paid and only pay in the difference of 3% in SA. However, say you work offshore in a foreign jurisdiction and pay 0% tax but in SA you would pay 45% as per the tables, then you will have to pay the 45% like any other South African. Your other alternative is to emigrate by (1) changing your intention never to return to SA (“ordinarily resident” test) (2) make sure that you spend less than 91 days per annum in SA. Just be aware that if you emigrate then you will have a disposal for capital gains tax purposes.

“I support Treasury in nailing Mr Oil rig man…”

Jnrb, when you opened with that, the word ‘statism drone’ immediately describes you

And you lost all respect there

The very fact that you support tax, which in effect is legalized theft, ESPECIALLY exacerbated here in SA as evidenced by a government at war with its own people, looting and plundering at will while the ship sinks due to their own greed and incompetence

Our infrastructure is decaying by the day, at this point us citizens get ZERO services for our money….crime is rampant…….they are bringing out increasingly stringent and stifling tax laws and red tape legislation by the day…..our SOE’s are bankrupt…state capture and thuggery is the order of the day….etc etc

I need top stop here before I slash my wrists

Suffice to say, Jnrb, you are officially an idiot [ or trolling on behalf of that mafia organisation called SARS ]

And anyone who supports these criminals by funding them with tax, will be guilty by association in aiding and abetting them.

@jnrb, I submit that it’s you who has failed to grasp what the proposed change means.

The proposed change would have taxed people who spend a majority of their time outside of SA, do not have family here who don’t already work and pay their own taxes, and while they may pay lower income taxes where they live, they pay higher taxes in other ways, including higher consumption taxes and state mandated health/retirement insurance for which they get no tax breaks (unlike retirement contributions made to a South African pension fund) AND they have much higher living costs than if they were to live in SA. And even if they earn a mid level salary they’ll fall into the highest SA tax brackets due to the exchange rate. These people will be forced to lower their living standards to below what they could have working the same job in SA.

The credit as proposed would also be applied retroactively. This means you would pay full tax in the country where you work, and full tax in SA, and have to wait for a refund, which for this kind of taxation can take a long time.

This is hardly leveling the playing field. This is why the US, for instance, has a significant exemption (just over $100,000 currently) on which you pay no US tax. $100,000 is a very high salary in the US, and even in places like the UK it would exempt the majority if not all of your income for most jobs. They also allow a housing cost exemption under some circumstances.

While it is fair to go after those who structure their time out of the country specifically to avoid taxes, it is not fair to indiscriminately pull in everyone who works outside of SA.

The fact that Treasury is considering income exemptions and other modifications to their original proposal shows that they understand these are real issues affecting people who are not trying to dodge paying their share but merely trying to make a reasonable living.

Having worked both in RSA and abroad, I do think you have no grasp of economics. Yes Mr Oil rig man as you call him does indeed get paid in other currencies, but most of the people do actually send the money home. Now thats a boost for the economy that the goverment don’t have to pay for. What you suggesting is that you tax those people and they will definately pull out of RSA. Brilliant idea!!!! And dont forget, he has to stay away from his family for long periods and he’s getting rewarded for that. Just my 2 cent’s worth.

@jnrb, a little economics 101 – SA works on the personal income tax principle. That means that the individual is taxed on their personal income, in their personal capacity. To make this clearer, take two salary earners, same salary; Individual A (+ spouse & 3 kids) pays the same tax rate as Individual B (single, no dependants) at the personal income tax level. Individual A’s spouse may be employed, and in that case will pay tax on their own personal income. Individual A’s kids are not taxed (for “using the roads”); they will one day pay tax in their own right.

So your argument that Mr Oil Rig Man should pay tax because his family is at home ‘using the roads’ unfortunately has no legal or economic grounds. Our tax system doesn’t work that way. You can have 17 kids at home, it matters not – you don’t pay more tax in SA. In reality, you pay more secondary (consumption) based taxes due to higher local spend and hence it can be argued they actually support the economy to a larger degree than bachelor B but again, that is immaterial.

The issue at stake remains that of the taxpayer’s realised benefits in return for taxation. Oil Rig Man himself, as the taxpayer and the only consideration in a legal and economic sense, is only in SA for 5 months of the year. As such, he utilises less state resources and enjoys less state protection than a full time resident. He is also typically incurring significantly higher cost of living expenses in the locations worked, as well as paying local taxes at the going rate of the region, which are in relation to the package earned, cost of living and socio-economic policies of the employing country. After any DTA tax credit, to then calculate their South African tax liability based on a devalued Rand is mathematically nonsensical as it relates in no way to a direct earnings comparison back in SA. Were they able to be employed in SA (many work abroad due to affirmative action policies denying them employment) they would earn significantly less in real (Rand) terms and hence be taxed in a significantly lower tax bracket.

Many are in effect being forced to work abroad in order to put bread on the table. The personal sacrifice is often overlooked in this argument but consider missed birthdays, missed first days of school, missed prize-giving’s, missed anniversaries/Christmas/Easter/Holidays, being missed in times of need (death, injuries, illnesses) and numerous other sacrifices, too many to mention here. Only once you have been left with no choice but to work abroad, away from your family & loved ones do you come to realise the full sacrifice and costs involved.

Sounding a bit bitter there, you do know that not all expats are “Mr Oil Rig man” people??? Some of us have to work outside the borders due to discriminating racial AA and BBEEE laws? I am a trades man, not Mr Oil Rig man, I can not find work in SA due to AA. When you do find work its on contract basis, contracts that deprives me of the benefits of a permanent employment position, such as Pension, UIF, medical aid contributions and lately any form of Labour legislation that protects me as an employee.
Infrastructure? Lets see, I pay 3 times what the poor pays for electricity, I pay rates (sewage/water/rubbish) according the value of my property. The road my wife drives on to take my kids to school (school which I am paying 100% for, from my own pocket) is paid for by the fuel levy, we go to the local private hospital. If I need to visit local government or Home affairs, I pay the same as you do.
I refer to your statement “Yet we have to carry the can for them and their families”, REALLY???how do you do that? do you contribute to my medical aid, pension fund? pay for my kids school? I have never received social grants or any other form of “carry”.
“Why should there be any distinction between me and Mr Oil Rig man?” Well Mr Oil Rig man, spends 6 months of the year away from his family, you don’t, have you even stopped to put a value behind the “extra” 6 months a year you spent with your family, time he looses out on? Money can not and will never make up for the loss of social time with my wife and kids. Mr Oil Rig man should be allowed some relief for just that. Mr Oil Rig man has no recourse should he be killed or rendered disabled while working offshore.
Lets say all these expats return, where were you and treasury going to employ them? The economy is at a stand still/stagnant, slowly sliding down the “junk status” pit. There are more mines and companies closing down, than there are new ones starting up. Latest is a trend from the ANC government to side with Chinese firms. Apparently due to a skills shortage? shortage that was created by racial biased AA laws. On top of that “Mr Oil Rig man” is going to walk into the AA problem as soon as he attempts to apply for a job. Thus he will be jobless, living of what he presumably, have been saving while working offshore. He can not claim UIF.
And just as a friendly reminder, roughly 440000 oil workers lost their jobs due to lower oil prices, you should rather be grateful that those SA Oil men who are now stuck at home can see to themselves, they will not be a “social grant” problem.
I am not saying that expats should be 100% tax exempt, but Treasury needs to be very fair in their attempt to deal with this, otherwise you are simply going to start a mass immigration problem, that will eventually dwindle down the “45%” tax base, once that starts, the rest of South Africa’s remaining taxpayers are going to be forced to pick up that loss/tab in increased taxes.

Dont worry MikeSA, @jnrb is probably working for the govt or its thuggish extortion unit…oops I mean SARS

Dont expect a sensible reply from him.

Before you return make sure all your assets are held in a structure that exempts you from tax. Own nothing. Control everything. There are people who can do that for you. E.g. Sovereign. That way at least when you die the looters don’t get your lifetime of hard earned savings.

My submission would be that for the while that the expatriate is not a “burden” to SA , then his/her earnings should be exempt!
When he does return to SA on a apermannet basis ; his repatriated Capital should be subject to taxation.

Under the proposed system; where DTA’s apply; it will be near impossible to properly evaluate their liability to the Fiscus.

Considering the high unemployment rate in SA; this may well be another fishing expedition gone wrong; if not carefully implemented.

Surely you want people to bring money to South Africa? If you tax money coming in, the money will simply stay outside to benefit people overseas.

The problem is that High taxes don’t solve the problem, so even if mr oil rig man is taxed, it still does not help you. Less government control, less taxes, economy will grow. Its not rocket science, and it works every time. Oh AND DON’T STEAL

Tax money is used to bribe voters with social grants.

Taxes in fact are legalized theft

And is only barely tolerated in any well maintained civilized country [
Switzerland/Singapore etc, where statism is at the very MINIMUM ]

In SA, WITH our crumbling infrastructure, blatant looting and corruption etc etc, tax is nothing less then EXTORTION.

pERIOD.

ALL governments are parasitic by nature

And tax is the means with which to keep the thugs in power…oops, I mean politicians…….. who otherwise couldnt hold down a 9 to 5 if it bit them in the arse….

Meanwhile, the sheeple will keep coughing up their hard earned money in the belief that they are getting ‘something back’

What a joke !

As George Carlin once said: ” Its called the American Dream, because you have to be asleep to believe it

Same applies here.

Today we live in a world of blame, if ALL Safricans were made to feel welcome and a constructive part of the future of this country there would not be 1 comment here … but the constant BS rhetoric of “Colonialists and White Capitalists” and a thousand other wordings that some determined halfwits spend all day thinking up will guarantee some Saffers looking for a purpose in life, and that will be anywhere else but here.

Jnrb, the problem is that it is much more expenssive to live in most foreign countries than in SA. The tax will need to be paid on the foreign earnings which may be more than the equivalent local earnings for the same job but in value terms are equivalent. The tax will therefore be much higher than would be paid on the same value local earnings.

Others have mentioned the flaw of taking a statist perspective and the questions around the mentality of ‘but that’s not fair’ from both sides. Another already touched on the question of how exactly is this going to then be fair to taxpayers administratively, which is not being answered beyond being an issue the taxpayer has to figure out and will be potentially at the abuse of SARS.

What I’d like to add to that is as aspect not yet covered. Especially if taking into account a wider picture: one of these bits of legislation; other proposals in the Governments pipeline; my knowledge of historical trends SA is following; knowledge of political ideologies, their thought and emotion; the corruption and ultimately growing noise against ‘colonisers’ that I keep hearing it has encouraged myself as an expat to go forward with severing my financial this month.

It’s not the matter of my own going that is important and I’m sure I’m not even a blip on the radar. I’m sure some readers will even think things like “Go! Voetsak! Traitor!” while reading this. However the reality is that it will ultimately encourage many to sever financial links themselves and not direct funds/savings to SA. Nor keep other funds in.

Being potentially regarded as resident now, even if I’m only in the country for three months – and let me add my own immediate family is not in SA at all! also precludes me from wanting to do any more than visit more than a month in any year.

The time limit is my own time buffer as risk management against future stupid regressive legislation that appears to see my ilk as an easy money target to shore up government corruption and hateful politics. However the fact my family is not in SA then needs to be considered also against the argument around the simplistic binary outcomes scenario of having family in SA while working offshore.

I’m really not convinced that this simplistic scenario is a valid thought argument and justification to capture all situations. Ultimately it’s being forwarded as a tool to shield the statist reasoning from the emotional thought of ‘It’s not fair (they earn more than me)!”

Don’t want to kill the golden goose hey..
Well its good they do sit-up and take notice… even if its at this stage only lip-service.

MOst valid comments have already been left, but I would like to add a personal feeling. After studying abroard I moved back to SA in order to live and work in the country I loved. I was flexible and willing to put in the time to prove myself. I spent 6 months on a family members couch trying to find a job. After 6 months I made the decision to look abroad and found something suitable within a month. I never wanted to go overseas, I WANTED to live and work in SA, but due to the current political climate the opportunities to build the life that I wanted and valued was not available.
Its been 10 years since and I haven’t returned to SA to work/live. I do have investments there, and we do spend 1 – 2 months a year in SA for family matters and holidays.
Now, if I am going to be taxed, even the percentage difference from my current tax jurisdiction that I am in, I will view it as extreme opportunism by a government that has a well documented record or mismanagement and corruption. Why should expats accept this when the government does nothing to increase unity or work opportunities?
All that will happen is that our visits to SA will lessen extensively, I will probably sell assets held in SA and use that money to protect myself as well as possible from our tax authorities. If you calculate this by the amount of expats who will do something similar, I believe that overall there will more than likely be a nett loss overall. for example: You want R30 000 tax from me, that will be one trip (R50 000) less to SA. Less travelers on SAA, more bailout needed.

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