The tax implications for expatriates following the amendment of the Income Tax Act

Abstract

In South Africa income tax is levied at a progressive rate on any income earned. South Africa changed to a residence-based system after following a source-based system prior to 2001. Therefore, residency is a very important concept to the South African tax law. As South Africans are taxed on their worldwide income the amendment to section 10(1)(o)(ii) of the Income Tax Act could have various implications for South African expatriates living abroad. This section exempted natural persons who received remuneration outside of South Africa from paying tax on foreign employment remuneration. The National Treasury had the intention to repeal section 10(1)(o)(ii) of the Income Tax Act as a whole. However, the National Treasury decided to change only the wording of this section. The new wording exempts South African expatriates from paying tax on foreign employment income to the extent that the remuneration does not exceed R1 250 000 in a year of assessment. Because taxation of foreign employment income is a new concept to South Africa, the tax implications for expatriates following the amendment of section 10(1)(o)(ii) of the Income Tax Act is a question that arises. This study found that the amendment of the Income Tax Act will have various implications for expatriates, but only two of them are tax-related. Expatriates will have to pay up to 45% tax to South Africa on their foreign employment income and a capital gains exit tax if they financially emigrate to avoid the first tax implication.