Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
‘EXPAT TAX’: YOUR
TOP 5 QUESTIONS
Head of Fiduciary and Tax
Mar 04, 2020
1. How will the existing tax laws be amended?
With effect from 1 March 2020, Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 (ITA) has been amended to allow only the first R1.25 million of foreign remuneration to be exempt from tax in South Africa. This effectively means that all South African tax residents working abroad are now subject to tax in South Africa on any foreign employment income above the R1.25 million threshold. If tax has been paid on these earnings in the foreign host country, South Africa will allow a tax credit, limited to the amount of local tax payable on the foreign earnings.
2. Who will be affected by the new laws?
There’s been much media hype around the tax law amendments, with headlines often referring to ‘SA expats working abroad’. It’s important to note that the change in legislation won’t necessarily impact all South Africans working abroad. In broad terms, it will only be applicable if you’re still a South African tax resident, and:
If this applies to you, it may be beneficial to consider the cessation of your South African tax residency, or rely on an available double tax treaty. See our article on the implications for estate planning if you decide to cease your South African tax residency.
It’s crucial to consult a fiduciary and tax expert, however, as your current circumstances might result in you falling outside the scope of the new Section 10(1)(o)(ii), for example, if you’re:
3. If I cease my tax residency, will the exit charge apply only to my SA assets?
There is a misperception that if you cease to be a tax resident, the exit charge will apply only to your South African assets and not to those held abroad. This can’t be further from the truth. As a local tax resident you’re subject to tax on a worldwide basis. When you cease to be a South African tax resident, you’ll therefore trigger an exit charge on your worldwide assets, and not only your local assets.
The Income Tax Act 58 of 1962 includes a provision under Section 9H that should a person cease their residency, they must be treated as having disposed of all their worldwide assets on the day immediately before cessation. A note of caution: the provision states that the market value to be used is not the value on the day you cease your residency, but the value on the preceding day.
4. Are there any assets excluded from the exit charge when I cease to be a tax resident?
The exit charge will be applicable on your worldwide assets – excluding any fixed property you own in South Africa. However, as a non-tax resident, you’ll still be liable for capital gains tax when you sell the property.
5. Will I be taxed at the 45% marginal tax rate?
If your foreign employment income is equal to or greater than R1 577 301 for the tax year, it doesn’t necessarily mean you’ll be taxed at 45%. It’s important to remember that you’re taxed on a worldwide basis and not only on your foreign employment income. Once you’ve included all your income in your tax return (including foreign employment income and interest) the South African Revenue Service (SARS) will first apply the relevant exemptions. It will then deduct any qualifying deductions and add any taxable capital gains. Only then you will derive at your taxable income.
For example, on an income of R1 577 301 that is derived solely from foreign employment, after the R1.25 million exemption – and assuming you have no deductions and taxable capital gains – only R327 301 will be taxable income. If your employer deducted the relevant employees’ tax in the foreign jurisdiction, any taxes levied on the R327 301 portion may be used as a credit to ensure you’re not double taxed. Also, as a tax resident, you’re still entitled to a primary rebate.
The idea that you’ll be taxed at the marginal rate of 45% on your total foreign employment income is therefore incorrect. You’ll have to take into account the relevant exemptions as well as deductions, not forgetting your rebates and credits for taxes already paid abroad.
It’s crucial that you fully understand how the tax law amendments could impact you – uninformed decisions may have significant financial consequences for both you and your family. If you’d like further information or advice, contact Stanley Broun on 011 778 6648 or firstname.lastname@example.org.
The formation and registration of trusts, and the provision of independent trusteeships – both local and oﬀshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.