Dialogue on foreign income tax

Several organisations have submitted proposals relating to the foreign income exemption for the 2019 legislative cycle.

National Treasury is sticking to its amendment to limit the taxfree income local tax residents earn outside of South Africa to R1 million. Industry bodies are asking that the cap exclude benefits, which are “a necessity” in some countries.

The SA Institute for Tax Professionals (Sait), Tax Consulting SA, the Expatriate Petition Group (EPG), and the SA Rewards Association (Sara) are among the entities that have submitted proposals to be included in the 2019 budget review.

Tax Consulting SA said in its submission, representative of EPG and Sara members, that the limitation has been enacted “arbitrarily, and there appears to be no rationale” for implementing it or for setting it at R1 million.

Jaco la Grange of Sait says the cap does help a particular group of taxpayers – lower to middle income South African tax residents who work in high income tax jurisdictions. “It has become evident that the R1 million exemption provides little relief for typical employer-sponsored assignees, who are normally provided with a number of assignment-specific benefits.” “These benefits are not geared at enriching the assignees, but rather towards ensuring that they are no better or worse off due to their employer-initiated transfer, and at providing them with a quality of life as equivalent as possible to that which they would have enjoyed at home.”

EPG, with about 20 000 members, found that about 30% of the people surveyed worked in the United Arab Emirates; half are obliged to pay tax, and the average marginal rate is 15%. Also, 26% of the expatriates’ foreign income consists of benefits and allowances likes medical aid, housing, school fees, security and hardship subsidies.

More than 70% confirmed they would exceed the R1 million threshold if their remuneration package is converted to rands.

Due to the high cost of accommodation, this benefit alone could erode the R1 million exemption, says La Grange.

Sait proposes that employer-provided accommodation be excluded from remuneration.

This will be in line with many other countries that follow worldwide resident basis of taxation.