SARS TIGHTENING THE TAX NOOSE ON SA EXPATS

THE ANNOUNCEMENT by National Treasury and the SA Revenue Service (Sars) in 2017 that the tax exemption on South African expatriates is set to change, has resulted in the lifestyle of many South Africans, who are employed by companies abroad, to rapidly change from a South African tax liability point of view.

The legislative amendment, which will come into effect on March 1 next year, states that South African tax residents abroad will be required to pay tax to South Africa of up to 45% of their foreign employment income, where it exceeds the R1m threshold.

With the commencement of the new law fast approaching, Sars has begun prosecuting taxpayers that are non-compliant and, in some cases, has the option to imprison the offender up to a period of two years. This is in terms of the Tax Administration Act and with the help of the now fully active Common Reporting Standard.

Treasury and Sars have submitted to Parliament that researched numbers on expatriate tax submissions revealed that most South African passport holders and permanent residents simply left, without formalising their affairs with Sars or the SA Reserve Bank. This has prompted not only a law change, but also a stated Sars tax audit focus on expats who left and decided to ignore their taxes.

While some did not consider it necessary to submit returns in South Africa, others submitted zero tax returns.

Some even indicated that they were unemployed on their tax returns while earning expat salaries.

While many expats hope that Sars will drag its feet, the 2017/18 tax return already included targeted questions dealing with expatriate tax status.

The questions may appear innocent enough, but we have seen this trigger an automatic verification or audit process. Where the question is marked false, this is a criminal offence, thus creating an even more serious problem.

Sars committed itself to complete its implementation of the Organisation for Economic Corporation and Development’s Common Reporting Standard by end of December 2017.

This means there will no longer be offshore hidden money as the world has followed the US’s lead in forcing disclosure by financial institutions of any account owned or otherwise connected to South African residents or citizens.

Those who do offshore banking will be reported to Sars – with an audit trigger to alert the tax officer when your Sars profile is not correct.

To avoid criminal prosecution, South Africans working abroad can opt for financial emigration, this is a formal process with the reserve bank to change one’s tax status from “resident” to “non-resident”.

Financial emigration provides legal certainty on non-residency status for tax and exchange control purposes, as well as holding certain financial planning benefits such as the one of the few ways of cashing out your retirement annuity.

When one emigrates financially they cease to be a South African tax resident and will not be liable to pay any South African tax on their worldwide income. They will, however, be required to declare any South African-sourced income which may be taxable.

Claudia Aires Apicella is the head of financial emigration at Tax Consulting SA.