Taxman targets SA folk earning abroad

IF you have a good job overseas‚ living in a country where the tax rate is 25%‚ but your salary falls into South Africa’s 45% tax bracket‚ the taxman now wants to come after you to collect the difference of 20%.

Tax Consulting managing partner Jerry Botha said the draft tax law amendments for 2017‚ which have been published by the national Treasury‚ propose a far harsher tax treatment on people earning their livelihood abroad.

He said the draft law recommends that the exemption section 10(1)(o)(ii) be completely repealed.

“This means foreign employment income will become fully taxable‚ and the only relief that may be claimed as a tax credit is foreign taxes paid,” Botha said.

“For example‚ where the employee falls into the 45% tax bracket and pays 25% tax in the foreign country‚ SARS will now collect the difference of 20%.”

The current tax law determines that South African tax residents overseas must disclose their worldwide income to the South African Revenue Service (SARS)‚ and may then claim an exemption on their employment income physically earned outside South Africa.

Former finance minister Pravin Gordhan announced in his February 22 budget speech this year that changes to this section were on the horizon.

The suggestion was made that the exemption should not apply where the employee is not being taxed in the foreign country.

“There are limited options for South Africans abroad‚ should this law take effect‚” Botha said.

“One alternative would be to properly emigrate‚ in which case there is a deemed disposal capital gains tax event.

“SARS probably anticipates this likely move‚ as the 2016-17 tax return now has a specific disclosure hereon‚ which never previously existed.

“Other taxpayers are looking at establishing tax treaty residency in another country‚ but this is not as simple as getting a tax residency certificate somewhere else.

“Anyone who has been through a SARS process [on this] would know how complex this may become.”

Botha said this move by the taxman could see more South Africans doing a cost estimate and possibly returning home.

“We have seen some expatriates indicating that with full tax on international employment income‚ which is what is effectively proposed‚ coupled with the high costs of international work‚ coming home may be their only alternative‚” he said.

The deadline for comment on the draft law is August 18.

The law is set to take effect from March 1 2019.