Increase in tax-free cap on foreign earnings
RELIEF: LIMIT LIFTED TO R1.25 MILLION FROM R1 MILLION
Sars will ensure people working abroad ‘pay the appropriate level of tax’.
South Africans working and living abroad have been given some relief, with a slight increase in the tax-free cap on their foreign earnings. National Treasury introduced a R1 million limit on the tax-free amount SA tax residents can earn abroad. This limit has now been increased to R1.25 million, effective from next month.
South Africans who have been living abroad for many years have increasingly opted to emigrate or to break ties with the country to avoid paying more tax in SA.
Finance Minister Tito Mboweni said in his budget speech government wants to encourage South Africans abroad to keep their ties with the country.
The “administratively burdensome” process of emigration through the South Africa Reserve Bank will also be phased out.
The concept of emigration is to be replaced by a verification process. Tax residency for individuals will continue to be determined by the ordinarily resident and physically present tests, as set out in the Income Tax Act.
SA is one of several countries which committed to sharing taxpayer information with regards to bank accounts and investments. In this way, the South African Revenue Service (Sars) will be able to get access to information relating to South African tax residents’ income outside of the country to ensure that they pay “the appropriate level of tax”.
In the 2020 budget review, government proposes to remove the exchange control treatment for individuals, while strengthening the tax treatment.
“The intention is to allow individuals who work abroad more flexibility, provided funds are legitimately sourced and the individual is in good standing with Sars.”
Individuals who transfer more than R10 million offshore will be subjected to a more stringent verification process.
The focus will be on the source of the funds and the transfers will trigger a risk management test that will include certification of the individual’s tax status.
There must also be the assurance that the individual complies with anti-money laundering and countering terror financing requirements. This will be phased in by 1 March, 2021.