Dreaming of a different life on foreign shores – tax and working abroad

tax abroad foreign

When the South Easter blows and crime and politics depress you, you may be excused for becoming restless.

When depressed many of us seek comfort in food, family and friends. However, even the good South African institution of a braai (a wood-fuelled barbeque for our international readers) has become expensive. The price for a kilo of lamb chops can put you back R145.54 (if you are in the Eastern Cape) or R170.35 (if you found yourself in Gauteng). The petrol to drive to your favourite braai spot will set you back R15.71 per litre.

You may start to wonder if you could stomach foreign cuisine for a while… You are not alone.
Many South Africans are opting for working overseas for a period of time in order to secure a better income.

With a foot in two countries, would I have to pay tax times two?

There are a number of rumours on social media about ‘sudden’ increases in tax for expats. This has led to panic for some and confusion as to whether it would then be a good thing to still own property or have business interests in South Africa – is it not better to withdraw completely, you may ask.

Instead of listening to the social media scare mongers, it is best to contact me, your financial advisor. This is done best before you leave, so that we can make sure that you set sail to foreign shores safely, within the parameters of the law, and so that we can set up mechanisms to reduce tax payable here – legally!

The truth of the matter until the 28th of February 2020

According to existing legislation (to be enforced up to 28 February 2020), South African tax residents working abroad are entitled to a tax exemption from income earned overseas, as long as they are physically outside of South Africa for 183 days. These do not have to be consecutive days, but should come to 183 days in a 12-month period and 60 days of these must be continuous.

However, how you understand the concept of employment is important, as the current and impending law only applies when you earn a salary as an employee, irrespective of whether your employer is a South African or a foreign company. Unfortunately, you will be unable to claim the tax emption benefit if you are in an independent contractor relationship with a company or companies abroad.

You must declare in order to qualify for exemption

Just because you may not owe the Tax Man back home anything, it does not mean you do not have to tell him so. Every South African taxpayer abroad still needs to declare everything they have earned, including all foreign income in a South African tax return. They can THEN claim the relevant tax exemption.

Too often individuals earning foreign income just exclude the income from their tax return or completely neglect to submit tax returns at all. This is illegal!

Tax changes for expats from 1 March 2020

Effective from 1 March 2020, only the first R 1 million earned abroad will be exempt from tax in South Africa. The same rules in terms of 183 days spent abroad counts. This means that any amount earned over and above R 1 million will be taxed in South Africa at the relevant tax resident’s marginal tax rate. It is important to note that you will receive a tax credit for the taxes you have already paid in the foreign country of your employment. This is done to protect you from double taxation. Again, contact us at Northwood Financial Services cc to assist you in the process.

A practical example – Naletsana

Naletsana originally hails from Khayalitsha, Cape Town. She has studied medicine at the University of Cape Town and, after practicing for a few years, enrolled in and achieved a post-graduate qualification in nuclear medicine. Study fees were high and even though her bursary covered most of her expenses, she still sits with significant debt.

Earlier this year she was offered a position in a hospital in Dubai. She will earn the equivalent of R1.5million per year. In the coming year she plans not to return to South Africa, other than for a quick visit to her family over the Christmas holidays. She is leaving in February 2020 and will start work on the 1st of March, 2020. This means that her first taxable income will fall in the 2020/2021 tax year – 1 March 2020 to 28 February 2021.

Naletsana’s tax 

Naletsana will be subject to tax in Dubai under its domestic law on a monthly basis, on the full income she has earned.

She would ALSO be required to declare the R1.5million she earned in Dubai on her South African tax return for the 2021 year of assessment. Only the first R 1 million will be exempt from income tax in South Africa. This means that the R500.000 (i.e. the amount over R1million) will also be subject to tax in South Africa.

Luckily for Naletsana, she will be able to claim a tax credit in South Africa for taxes already paid in Dubai on that income portion (the R500.000) in order to avoid double taxation.

From traditional South African fare to Emirati cuisine – home is where the heart is

For peace of mind it is best to do things right. You do not want to return to South Africa and face legal wranglings with the Tax Man. Speak to your financial advisor, he may know a thing or two!

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