Explaining Tax Changes in South Africa

The number of South African outbound expatriate employees has been steadily increasing over the past few years. While a good many are simply drawn to the experience of relocating and working in a different country, others look to gain advantage from tax exemption laws which prevent them from double taxation (in South African and in a foreign location) under certain conditions. However, future amendments to these laws are set to come into affect as of March 2020, which are likely to change things up significantly. As one of the leading recruitment agencies in Malta, the team at Boston Link takes a look at tax changes for South African expats.

The current situation

Provided that certain conditions are met, South Africans working abroad are eligible for a tax exemption which prevents them from being doubly taxed in South Africa and in the foreign country where they are employed and living. This amendment under South African law falls under Section 10(1)(o)(ii), which specifically applies to services physically rendered for, or on behalf of an employer outside of South Africa for a period over 183 days within a 12-month period. Additionally, the tax resident must be away from South Africa for a consecutive period of 60 days within the same year of assessment.  

If an individual satisfies the above conditions, then they are exempt from South African tax in relation to any funds earned from foreign employment duties.

What does the future hold?

South African legislation related to the exemption of foreign employment income was amended in December 2017, and is set to be effective from 1st March 2020. The exemption will then be capped at ZAR 1 million for the year of assessment.

Further relief is still available for those individuals whose income exceeds the above cap. This relief falls under a Double Taxation Agreement (DTA) and applies to certain income earned through foreign sources which will not be taxable in South Africa. Also subject to South African tax is claiming foreign tax credits regarding taxes paid in the foreign country on foreign sourced income. The latter is provided if the individual in question is not or cannot be granted exclusive taxing rights to one of the states by the aforementioned DTA, or if there is no DTA in place. From 2020, South African expats living in Dubai or Singapore (low or no tax locations) may discover remaning South African tax liabilities.

Confused? Read this simple example below

Here’s a hypothetical scenario of Ms. Campbell, a South African who has recently moved abroad and who earns an annual salary of R800 000. Together with her pay, the company has also paid relocation costs (such as VISAs, food, accommodation and permits) along with a number of incentives. When combined, the total value of these perks adds up to R752 000.

In order to calculate her worldwide income, Ms. Campbell now has to add both her salary along with the cost of the perks and benefits that the company pays for, which in her case would be R1 552 000. This would be accrued over a 12-month tax period.

Therefore, despite her salary of R 800 000, Ms. Campbell still owes 45% on the income which exceeds the R1000 000 cap, which she will need to recover from her basic yearly salary – the fringe benefits that she receives do not count as funds she can use to pay her taxes.

Of course, the above scenario only applies if any perks and benefits are counted as part of your income.

Are you from South Africa and are thinking of relocating? Contact Boston Link, one of the most trustworthy recruitment agencies in Malta

As one of the leading recruitment agencies in Malta, the team at Boston Link specialises in recruiting and relocating skilled candidates to locations such as Malta, the Isle of Man and Jersey, which all have attractive tax rates and schemes targeted towards expats. To view our current vacancies, visit our landing pages for Jersey, the Isle of Man and Malta.

We make a point of keeping an ear to the ground in order to find out the very best living conditions and roles for clients, offering a personal touch to our services that few other recruitment agencies in Malta can match. Contact us today for more information, and don’t forget to follow us on Facebook!