It’s not the most romantic topic for couples to discuss, but it’s one of those big adult things that needs to be addressed in every relationship: money. Specifically income, and income tax. It’s a discussion worth having, especially if you’re a couple living abroad because the laws around expat tax in South Africa have changed recently. You’re going to want to make sure you’re on top of these changes, in order to avoid nasty surprises in the form of administrative penalties from the South African Revenue Service.
South African expat tax advice
What’s changed in terms of the way expats are taxed by SARS? Everything! Previously South African tax residents could claim tax exemption on their foreign income under section 10(1)(o)(ii) of the Income Tax Act.
This provision applied to tax residents employed in the private sector outside South Africa for longer than 183 full days in any 12-month period (of which at least 60 days must be consecutive). As long as all these requirements were met, tax residents would qualify for an exemption on their entire pay cheque for services rendered abroad.
New expat tax laws in South Africa: since 1 March 2020
South African tax residents rendering employment services abroad can still access the section 10(1)(o)(ii) exemption, except now only the first R1.25 million can be tax exempt.
It will still be necessary to observe the 183 and 60 full days’ requirements in order to qualify for this exemption and your foreign income over and above that R1.25 million will now be taxed in South Africa according to your personal margin based on the tax tables for the assessment tax year.
What type of income is covered under the expat tax exemption in South Africa?
The following will qualify for the exemption in terms of the Income Tax Act:
- Salary; including taxable benefits; leave pay and wages;
- overtime pay; bonuses; gratuities; commissions and fees
- Emolument and allowances, including travel allowances, advances and reimbursements;
- Amounts received from broad-based employee share plans; or
- Money received in respect of a share vesting.
How does expat tax affect couples?
If you’re a couple living and working abroad, you and your partner could be liable to pay expat tax back home in South Africa. Although you’ll be treated individually for tax purposes, having to pay income tax back home on foreign employment income can affect your financial situation if you’re not prepared for it. Furthermore, it could come as a massive shock that you might even be subject to double taxation – not because there are two of you – but because there is no Double Taxation Agreement between South Africa and the country in which you are rendering services in foreign employment.
This means that the first R1.25million you earn will be exempt from tax, but the portion after that is fair game for both tax authorities, unless there is a clear directive that gives either country the right to tax you first.
As you can well imagine, the two of you being taxed twice on your foreign income is a lot to swallow. It can affect your monthly budget immensely, which is why it’s worthwhile seeking South African expat tax advice if there’s anything you’re uncertain about.
Expat tax on couples in South Africa: what to do
- Find out if you and your partner are liable to pay expat tax by determining whether you’re considered a tax resident by the South African Revenue Service.
- Ascertain whether or not there is a Double Taxation Agreement in play if you are a tax resident
Some things to remember about expat tax in South Africa
- If you’re considered a South African tax resident, you’re expected to file an income tax return for every assessment year. Tell your partner!
- The foreign income tax exemption does not happen automatically, you have to apply for it and prove that you meet the requirements for the exemption.
- If you want to avoid expat tax entirely, it’s worthwhile for you and your partner to sit down and discuss the pros and cons of ceasing your tax residency in South Africa.
FinGlobal: South African expat tax experts
If you’re concerned about the effect of South expat tax on couples, we can help! We’ve got all the right tax expertise in-house to help you and your spouse get your tax affairs in order. We’re ready to help you with everything expat tax related – from tax advice, to tax refunds, tax clearance and tax emigration to ensure you’re square with SARS.
To get started on your free, completely confidential SARS tax residency assessment, leave us your contact details and let’s get the ball rolling!