Treasury is tightening up on the tax requirements for South Africans abroad. Currently, South Africans living and working outside of the country for more than 183 days a year are exempted from paying tax in South Africa. But Treasury has put forward a proposal to scrap this exemption, and it’s expected to be implemented from 2019.
Current tax requirements
South Africa and America both use a system whereby residents are taxed on their worldwide income. Green card holders are considered residents of the U.S. for income tax purposes, which means once you receive your green card, you will be expected to file an income tax return and pay tax in America (based on your worldwide income).
Because a double taxation agreement (DTA) exists between South Africa and America, you will not be taxed twice on the same income. This means that South African’s who have a green card, and are paying tax in America, can claim tax credits for the income tax they owe to SARS.
There may, however, be a differential between the rate of tax you’re liable to pay in the U.S. and in South Africa.
For example, the highest tax bracket in the U.S. is currently taxed at 39.6% – and this applies to those earning $415 000+ (approximately R6m+). In South Africa, the highest tax bracket is taxed at 45% and this applies to those earning R1,5m+. Those earning the equivalent of R1,5m in America (approximately $105,000) are only taxed at a rate of 28%.
This is the part of the puzzle that may affect South African emigrants. Currently, there is a tax exemption whereby South Africans spending more than 183 days outside of the country aren’t liable to pay tax on income earned outside of South Africa. But Treasury is looking to scrap this exemption.
This means that even if you are living outside of South Africa for more than 183 days a year, if your income earned in America is not taxed at the same level as it would be in South Africa, you may be required to pay the difference to SARS.
Implications for South Africans
Tax experts predict that if the proposed changes are adopted it will result in an increase in formal emigration from South Africa. Previously, many South Africans lived and worked abroad without going through the process of formal emigration.
Formal emigration is the process that formalises your permanent exit from South Africa for exchange control purposes. It changes your South African tax status from resident to non-resident. Once you are a non-resident for tax purposes, you will only be subject to SA tax on income that has its source in South Africa.
The proposed change only impacts South African tax “residents” and not “non-residents” for tax purposes – i.e. it will not affect those who have formally emigrated