Con­ces­sions to tax on for­eign in­come bring some re­lief

Back­lash from ex­pats and busi­nesses prompt a re­think on pro­posed re­form to tax ex­emp­tion.

Pretoria News - - NEWS - Amanda Visser

THE TREA­SURY has made some con­ces­sions on its ini­tial changes to the tax ex­emp­tion on for­eign in­come fol­low­ing a mas­sive back­lash from com­pa­nies and South Africans work­ing abroad.

The SA Rev­enue Ser­vice (Sars) and the Trea­sury re­ceived at least 8 000 com­plaints via so­cial me­dia, and more than 1 300 writ­ten sub­mis­sions on its pro­posal in the draft Tax­a­tion Laws Amend­ment Bill to re­peal the tax ex­emp­tion on for­eign in­come for peo­ple work­ing on long-term con­tracts.

The Trea­sury has ac­cepted the crit­i­cism that the ad­di­tional tax will have a se­vere im­pact on peo­ple who have been send­ing money back to South Africa to sup­port fam­ily liv­ing here.

It will now al­low the first R1 mil­lion of for­eign re­mu­ner­a­tion to be ex­empt from tax in South Africa if the in­di­vid­ual is out­side the coun­try for more than 183 days as well 60 con­sec­u­tive days in a 12-month pe­riod.

How­ever, South Africans will be taxed on the re­main­ing re­mu­ner­a­tion and will have to claim a tax credit in terms of the amount of tax they have paid in the host coun­try.

“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 ef­fect of the ex­emp­tion will also be that South African tax res­i­dents in high-in­cometax coun­tries are un­likely to be re­quired to pay any ad­di­tional top-up pay­ments to Sars,” the Trea­sury said in its draft re­sponse doc­u­ment to the par­lia­men­tary stand­ing com­mit­tee on fi­nance.

The date on which the new pro­pos­als will come into ef­fect has also been post­poned, to March 1, 2020.

Pa­tri­cia Williams, a tax part­ner at Bow­mans, said the post­pone­ment gave in­di­vid­u­als a chance to get their af­fairs in or­der be­fore the new tax rules came in. This might be par­tic­u­larly help­ful for peo­ple who want to take the leap and change their tax sta­tus.

“If one lives and works in a coun­try that has a dou­ble tax treaty with South Africa, chang­ing one’s coun­try of tax res­i­dence is of­ten much sim­pler than one might ex­pect, al­though there is a tax exit charge in re­la­tion to world­wide as­sets.

“Es­sen­tially the new pro­posal for the for­eign in­come ex­emp­tion is likely to only af­fect higher in­come earners, and only when these in­di­vid­u­als are un­able to change their tax res­i­dence away from South Africa be­fore March 1, 2020, when the pro­posal will be­come ef­fec­tive,” Williams said.

Tar­ryn Atkin­son, head of em­ploy­ees tax at First Rand, said the num­ber of changes which im­pact ex­pa­tri­ates in­tro­duced over the past few years might see a re­newed in­ter­est in global mo­bil­ity com­pa­nies.

This means that an off­shore-em­ploy­ment struc­ture could be set up where ev­ery­thing can be man­aged by a cen­tralised em­ploy­ment com­pany which em­ploys and dis­trib­utes em­ploy­ees.

Beatrie Gouws, vice-chair­per­son of the SA In­sti­tute of Tax Pro­fes­sion­als’ per­sonal in­come tax com­mit­tee, said on the side of the an­nual Tax Ind­aba that al­though the Trea­sury had said the tax credit sys­tem was func­tion­ing, they were of the opin­ion there was still a lot of work to be done.

“Cur­rently, the tax credit sys­tem is be­ing used only in cer­tain cir­cum­stances be­cause be­tween the cur­rent ex­emp­tion and dou­ble-tax agree­ments, the credit sys­tem has hardly been used.”

She said there was go­ing to be a mas­sive in­flux of peo­ple hav­ing to use it. In a lot of cases there was no proof of taxes paid in the host coun­try, so there had to be spe­cific rules on how to ap­ply it.

In some in­stances, peo­ple waited two years to re­ceive their tax cred­its. Williams noted that the Trea­sury re­ferred to a “hard­ship di­rec­tive” from Sars in re­la­tion to South African em­ploy­ees’ tax where there is dou­ble tax. A de­duc­tion of the for­eign taxes can also be claimed in the South African pro­vi­sional tax re­turns.

The Trea­sury did take note of the fact that the changes to the ex­emp­tion would in­crease the cost of em­ploy­ment for South Africans work­ing abroad. How­ever, it said the in­tro­duc­tion of the capped ex­emp­tion should al­le­vi­ate the in­creased tax­a­tion costs.

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