Work abroad? Be tax-savvy

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 SA would be subject to 45% tax, and you may then face a further tax bill of 20% in SA.

However, South Africans working abroad can claim the relief of a Double Taxation Agreement (DTA). They must obtain a certificate of tax residency and the onus rests on them to prove they meet the criteria of the DTA’s definitions.

A South African working abroad may escape the proposed amendment if:

They’re not deemed to be ordinarily resident in SA;

They’re deemed to be resident in a foreign country by virtue of DTA provisions.

The amendments to section 10(1)(o)(ii) of the Income Tax Act were published on July 20, and the Taxation Laws Amendment Bill was published for comment and is open for public comment until August 18.

While former finance minister 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 SA on their foreign employment income, subject to any off set of foreign tax paid.

However, this wouldn’t apply to all South Afrians working abroad.

SA has a residence-based system of taxation, so in general, government is able to tax your worldwide income if you are ordinarily resident in SA or meet the requirements of the physical presence test.

Many South Africans working abroad may still be deemed to be ordinarily resident in SA.

If you’re not deemed to be ordinarily resident in SA, the proposed changes to the Act won’t affect you. The onus is on you to demonstrate this fact to the receiver. DTA taxation relief Most DTAs contain specific provisions on the definition of a resident to settle which of two countries has the primary taxing rights over such person. These are the so-called tie-breaker rules 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’s regarded to be sole resident in that state for taxation purposes.

Mike Abbott is International director at Sable