Is expat tax fair?

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On 1 March 2020 the amended section of the Income Tax Act concerning the foreign employment income exemption comes into effect. South Africans working overseas are understandably worried about this ‘expat tax’ as some of them pay no tax if they meet certain criteria – but from next year, only R1 million of this income will be tax-exempt.

Hilary Dudley, MD of Citadel Fiduciary, believes the hype around the proposed change is clouding its fairness.

“Let’s look at this without the emotion attached. If an expat is earning money outside South Africa but still owns property, has a family who lives here and wants to be seen as a South African, it is realistic for such a person to be required to pay some level of direct tax,” she says. “And the R1 million threshold is quite reasonable considering the tax thresholds enjoyed by employees working in South Africa.”

If an expat is already paying direct tax in another country, then the effect of the new SA tax may be mitigated by tax paid elsewhere in terms of a double tax agreement with possible minimal effect. However, it is likely to be felt the most by those people working in tax havens, many of which have high levels of indirect taxes such as VAT, but where there is no payroll tax.

To read more about expat tax, download the April issue of RISKAFRICA magazine now!

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