The South African government is making a move towards changing its tax on remuneration earned outside South Africa \u2013 which could see some expats pay as much as 45% on earnings over R1 million outside of South Africa..\n\n\n\nBusinessTech quotes Tax Consulting SA who says the South African National Treasury has already invited key stakeholders to a workshop next month (March 2019) to address concerns around the planned regulations, which opens up the way for possible tweaking and changes ahead of the planned implementation date of new tax legislation for expats next year (March 2020).\n\n\n\nExperts is of the opinion that there is no way out of the government\u2019s plans to to tax foreign income of SA expats. They say even if the draft laws are changed in some way or another before implementation, the gist of if will remain the same - to milk the wealth of those who have left the country to build a better future. \n\n\n\nWhat happens at the moment? \n\n\n\nCurrently, reports BusinessTech.co.za, South Africans who are earning income abroad are assessed in terms of residency.\n\n\n\nIn terms of section 10(1)(o)(ii) of the Income Tax Act, if you are working overseas and do not meet the physical presence requirements to be an ordinary resident in South Africa, you are exempt from tax on any foreign income.\n\n\n\nNow this is changing. Originally, the draft regulations proposed the complete repeal of section 10(1)(o)(ii) of the Income Tax Act \u2013 the section that deals directly with taxation on foreign remuneration. \n\n\n\nUnder these conditions, all foreign income would have been taxed by SARS, and citizens would have to claim a credit against South African tax payable for any foreign taxes paid on that foreign income.\n\n\n\nThe draft regulations were later softened to not be a complete repeal, but that section 10(1)(0)(ii) be changed so that only the first R1 million of foreign remuneration will remain exempt from tax in SA \u2013 even if an individual meets the requirements of exemption.\n\n\n\nOne of the main reasons given for the changes is to curb situations of double non-taxation \u2013 being situations in which an individual\u2019s employment income is not subject to tax in either South Africa or in the foreign country where the services are rendered.\n\n\n\nWill you be affected? \n\n\n\nThe proposed changes will affect all South African employees who are earning an income overseas, taking home more than R1 million a year. \n\n\n\nIt will also impact companies that send employees overseas for work, who will have to deal with the new tax implications.\n\n\n\nSouth Africans who have permanently left the country, who have not settled their tax affairs (through financial emigration) may also be subject to the changes, depending on their individual circumstances.\n\n\n\nYoung people, or anyone who is travelling and working abroad who qualify for exemption under section 10(1)(o)(ii) will remain exempt, provided they earn less than R1 million in the year.\n\n\n\nAnd if you are living abroad permanently?\n\n\n\nThe tax changes could also impact people who are permanently living abroad, who currently qualify for exemption based on section 10(1)(o)(ii). These South Africans are typically not ordinarily resident in South Africa, but may have assets in the country, which could impact how SARS sees their tax affairs.\n\n\n\nSARS has a set guideline \u2013 called the physical presence test \u2013 to determine whether a South African is resident, based on physical presence in the country.\n\n\n\nThis is for a period or periods exceeding:\n\n\n\n91 days in total during the year of assessment under consideration;91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and915 days in total during those five preceding years of assessment.\n\n\n\nAn individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present,\u201d SARS said.\n\n\n\nIf an individual passes the physical presence test, they will be taxed on their worldwide income in South Africa.\n\n\n\nIs financial emigration necessary?\n\n\n\nBusinessTech quotes Sable International who is of the opinion that financial emigration \u2013 being the legal process of cutting all tax ties to South Africa \u2013 may not be necessary to avoid the expat tax, provided you meet the right requirements.\n\n\n\nIf you are a non-resident (South African living abroad) and can prove to SARS you are ordinarily resident in the country you\u2019re living in, then the tax should not apply.\n\n\n\nIf you are in a dual-residency situation, SARS may have a deal with the country you\u2019re living in that may make you exempt.\n\n\n\nHowever, this is specific to each individual situation, with no real general exemption that applies to all expats outside the section 10(1)(0)(ii) limits.