The way South Africa expats pay tax is changing and many may be sleepwalking into financial trouble without realising what is happening.
From March 2020, South Africans abroad face a massive financial shake-up after the government decided to tax their worldwide income, even if they live outside the country in popular expat destinations like Dubai and other Gulf States.
Around 800,000 South Africans living abroad are thought to be caught by the new tax, even if their money stays out of South Africa.
The biggest concern is South Africa expats are unaware of the charges because they are not keeping up with the news back home or are unaware they are impacted by the new rules.
Those in the Gulf’s tax-free economies could also suffer more than most as they pay no tax on earnings overseas but now face huge tax bills back home.
Tax-free pay targeted by SARS
The government is targeting every South African expat earning the equivalent of R1 million or more.
The limit is not confined to salary – the new rules also take account of the cash equivalent of benefits offered by employers, such as housing, school fees, travel, cars and medical insurance.
End of contract gratuities are also a target for the South African Revenue Service.
The tax-free payments are paid based on pay and time in a contract – but will now fall under the new tax regime.
The income tax on worldwide income will be charged at rates up to 45%.
But one expat financial expert explained the taxa change does not mean doom and gloom for every South Africa expat.
Tax mitigation options
“By taking the right advice as quickly as possible, you can mitigate that tax liability,” said Nigel Green, CEO and founder of world leading expat financial advice firm deVere Acuma.
“South Africans have a fantastic opportunity if they do take the right advice to reduce their taxation and to make sure they secure their financial future.”
Green also explained many experts touting financial emigration as a solution to the tax dilemma may be leading expats into more financial issues.
“Financial emigration is one option and not necessarily the best,” said Green. “Becoming non-resident can lead to capital gains problems and prevents expats retiring back home.
“There are other options available to mitigate the tax without taking such drastic steps.”