South African legislation governing expatriate tax exemption is set to change dramatically from 1 March 2020, affecting South Africans globally, notes Tax Consulting South Africa. This includes anyone who has permanently settled in another country.

Those who do not comply with the new requirements face stiff penalties and risk up to two years in prison, it said.

To help expatriates understand their obligations, local tax firm, Tax Consulting South Africa, held special workshops on the topic in the UAE and Qatar.

“The outstanding attendance at these presentations demonstrates that expatriates are desperate to avoid falling foul of the new law,” said Claudia Aires Apicella, head of financial emigration at the firm.

The general consensus after the events was, there are still many expatriates out there with their head in the sand regarding the change in legislation and therefore, failing to make proper arrangements to ensure that they are compliant and following proper procedure.

What’s changed?

The current Income Tax Act provides that if a South African in employed by either a local or foreign employer and renders services to them outside South African for longer than 183 days in any 12 month period, being continuously abroad for 60 of those days, their remuneration earned during that time shall be exempt from taxation by the South African Revenue Service (SARS).

From 1 March 2020, the conditions for exemption remain the same. However, only the first R1 million in remuneration will be exempt, with earnings above that threshold being subject tax at a rate of up to 45%, payable to SARS, Tax Consulting South Africa said.

Now what?

It is imperative that South African expatriates get themselves acquainted with the law and how it will affect them and avoid being fish bait to the many dodgy investment and aggressive tax schemes being punted at them, said Apicella.

There are a number of options available that could assist in alleviating the tax burden of expatriates whilst ensuring that they remain compliant. These include Financial Emigration and Double Tax Agreements (DTA) signed between two countries. These are safe and compliant planning options that help expats lessen their tax burden, Tax Consulting South Africa said.

Financial Emigration has been recognized and confirmed by SARS as a process in which one can cease their tax residency in South Africa, should one have a permanent or long-term intention to remain outside of South Africa on a permanent basis.

On the other hand, the DTA is used in the instances where individuals who have the intention to return to South Africa or who are simply uncertain about their intention to return.

It is important to note, however, that these options are specific and need to be applied on a case by case basis, said Apicella.

“The trip revealed and confirmed just how diverse the circumstances of South African expatriates living abroad are and are yet in the same boat when it comes to their tax affairs. Nevertheless, there is no one-size-fits-all solution to the amendment of the legislation.

“All in all there are a handful of South Africans becoming more informed but there are many out there who are still looking for guidance in these uncertain times, which the workshops aim to provide,” said Apicella.

Read: South Africa’s new expat tax ‘a scare tactic’: expert