Don’t let the taxman tax you twice

Mike Abbott, Head of Wealth at Sable International.

The government is looking in every revenue nook and cranny and with effect from 1 March 2019, all South Africans working abroad may be taxed in South Africa on their foreign employment income.

If you are a 25% taxpayer in the foreign country, those equivalent earnings in South Africa would be subject to 45% tax, the foreign worker may face a further tax bill of 20% in South Africa.

According to Mike Abbott, Head of Wealth at Sable International, South Africans working abroad can claim the relief of a Double Taxation Agreement (DTA).

“You have to obtain a certificate of tax residency from the overseas country, but the onus rests on them to prove that they meet the criteria of the DTA’s definitions,” said Abbott.

A South African working abroad may escape the proposed amendment if:

• You’re not deemed to be ordinarily resident in South Africa
• You’re deemed to be resident in your foreign country by virtue of the provisions of a double taxation agreement

But the onus remains on the taxpayer to prove this.

The amendments to section 10(1)(o)(ii) of the Income Tax act were published on 20 July 2017, the Taxation Laws Amendment Bill was published for comment and is open for public comment until 18 August 2017.

“Whereas the budget proposed tax on foreign employment income where such income was not subject to tax in the foreign country, the bill proposes a complete repeal of the exemption. This has the direct implication that all South Africans working abroad may be taxed in South Africa on their foreign employment income, subject to any off set of foreign tax paid.

Mike Abbott stresses that this would not apply to all South Afrians working abroad.

“South Africa has a residence-based system of taxation, so in general the government is able to tax your worldwide income if you are ordinarily resident in South Africa or meet the requirements of the physical presence test.

Many South Africans working abroad may still be deemed to be ordinarily resident in South Africa.