South Africa Expats Face Tax On The Cost Of Benefits

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South African expats are worried that a new tax on fringe benefits attached to their assignments abroad will quickly fritter away their ZAR1 million tax exemption.

The National Treasury has confirmed the new South African Expat Tax laws will start from March 2020 and has refused to allow expats any allowance for fringe benefits.

The cash value of these benefits is added to gross salaries and both are taxed together at rates up to 45%.

At a National Treasury workshop to discuss implementing the tax, delegates argued some benefits should be exempt from the tax – such as close protection and other security measures.

But a Treasury spokesman confirmed the new rules will stand and all fringe benefits are taxable from the start date.

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What benefits face tax?

This includes common expat benefits such as housing costs, cars, school fees, medical cover, flights to and from home and all other payments in kind.

Expats consider these benefits will soon erode their ZAR1 million allowance and leave them facing big tax bills unless companies step in and increase the value of salaries to cover the extra tax.

“The reality is that with this amendment, any additional cost would ultimately have to be borne by the employer, as no expat would accept an assignment without these benefits and, to ensure that these assignments remain lucrative, the employer would have to increase the expat’s package,” said a spokesman for Tax Consulting SA.

“Employers may have to consider resources from other jurisdictions, as this becomes a simple question of math.

Financial emigration

The spokesman explained that limited options are now available to expats.

“The expat exemption only relates to South African’s who are tax resident, so the obvious answer would be to cease tax residency of South Africa. However, doing this isn’t as simple as one might think,” said the spokesman.

“There are different options when doing this, but by far the cleanest and most direct approach would be to financially emigrate, provided, as noted above, correctly done. Once one becomes a non-tax resident, their foreign earned income and their foreign assets are protected from the grips of the South Africa Revenue Service.

“For those who cannot financially emigrate due to their factual circumstances, you would now be encouraged to start looking at double tax treaty protection, where applicable. There are also additional international localised structuring opportunities available for those who are not working in double tax treaty countries, but again we must caution that we have seen numerous products offered which are closer to tax evasion versus tax avoidance.”

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