The upcoming amendments to the Income Tax Act and the introduction of an ‘expat tax’ has caused anxiety for a large portion of South African nationals working abroad.

The amendments mean that South African tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

According to Gavin Duffy, a partner at PwC, many have not given consideration to what their South African tax residence status is and might not have been making correct historic declarations to the South African Revenue Service (SARS).

“The capping of the existing exemption comes into effect from 1 March and would pose a potential negative financial impact for South African tax residents who earn in excess of R1 million per annum for non-South African rendered services,” he said.

“However, taxes suffered in the foreign countries and timing of assignments can impact the net impact, if any, on the employee. “

Duffy added that local employers with employees working abroad need to give urgent consideration on PAYE requirements they may have on such employees.

“South African nationals who are not South African tax residents are not impacted by these changes, but nonetheless need to give consideration to their tax status with SARS to ensure their historic and current filing status is in order,” he said.

Tax link

Once the new rules come into effect, affected taxpayers will be required to provide additional documentation to SARS to support claims for tax credits in respect of remuneration that is now taxable both in South Africa and in the relevant foreign country.

This means that many are assessing their options regarding their tax residence status and are seeking to break any tax link they may have with South Africa through means such as financial emigration.

“The upcoming change in legislation has certainly caused anxiety for a large portion of South African nationals working abroad,” Duffy said.

“With the upcoming change in legislation many are now looking for clarity on the impact, both administrative and financial, of these changes.

“While in some cases active steps to break tax residence may be possible, this is often not the case and sometimes might not be the best long-term solution,” he said.

Read: How emigrating South Africans make life more difficult for the people who stay behind