Finance Minister Pravin Gordhan announced in his budget review that South Africans working abroad will soon be taxed on their income as if they were living at home, especially those working in tax-free countries like Dubai. Treasury says if a South African works in a foreign country for more than 183 days with no tax payable in the foreign country, that foreign employment income will benefit from double non taxation.
Ernie Lai King, head of tax at Hogan Lovells says the industry has yet to see the legislation surrounding this decision but expects the rules to apply for this tax year. “They don’t allow for grace periods as it could give South Africans working abroad the opportunity to arrange their affairs to get out of this net,” he added. However, he confirmed that the new rules would not apply retrospectively, in other words people living and working abroad will not be taxed on income that they had earned prior to this tax year.
Lai King added that with regard to foreign countries where there are double tax treaty agreements with South Africa, South Africans working abroad may not be taxed. “The double tax treaty agreement sets out who has the taxing rights. You can check the list of countries that we have this treaty with on the South African Revenue Services’ website,” he added.
Lai King warned that tax avoiders will be targeted. “This is easy to police. It’s up to you though to disclose your income, but there is very little place to hide. If you are unsure of your tax obligations I’d recommend you speak to a qualified tax practitioner regardless of whether you are an employer or employee, as it’s very technical,” he said.
In this year’s budget, Gordhan announced a new top marginal tax bracket of 45%. According to investment firm Old Mutual, this only applies to 103 000 taxpayers, who will on average pay R3 500 per month more in income tax. There are 7.4 million registered individual taxpayers in South Africa, but 6.5 million fall below the threshold income and don’t pay income tax.
