South African Expats Will Soon Have To Start Paying Tax: A Guide For Those In The UAE

South African expats working abroad will be required to start paying taxes back home from March 2020 when new taxation legislation is introduced by their government.

The move will mean that from next year any full-time South African expats living in the UAE and earning over $75,000 will no longer benefit from living in a tax-free region and will be expected to directly contribute to their country’s coffers.

Arabian Business has contacted the South African Consulate in Dubai but, at present, no details are available. We have reached out to the National Treasury, the agency which handles the tax regime in South Africa, for further information and are awaiting feedback.

In the meantime, Sunil Thacker, a partner at UAE-based STA Law Firm, outlines the issues involved and how the new regulations will impact South African expats living in the country.

Does anyone know exactly what the new South Africa tax law will mean for expats in the UAE/Gulf?

Currently, South African citizens who work overseas for more than 183 days, out of which 60 days are consecutive, are not obliged to pay South African tax.

The amendments to the South African Income Tax Act related to expat tax is to be introduced in March 2020. According to the amendments, it is necessary for South Africans to pay tax with the upper limit of 45 percent for all foreign employment income, if it exceeds R1 million per annum ($75,000).

Before these changes can be brought to force, however, the South African Revenue Service (SARS) will have to provide clarity on the procedures that would need to be implemented as well as the impact it would have on foreign taxes.

These changes will have a substantial impact on South African expats, but it is stipulated that the largest effect will be on those who are working in zero to low tax jurisdictions.

For expats in the GCC, a one-size-fits-all application will not resolve the issue since the tax law implications will differ for every person depending on their circumstances.

Based on what we know so far about the amendments being made, the following questions need to be considered:

1. How many days of the year are spent in South Africa?
2. Is the expat deciding his or her return to South Africa any time soon, or at all?
3. What impact does the law have on an array of assets owned by the person, depending on the location they are in?
4. What is the status of their current tax position in South Africa?
5. Where is the person registered for tax? South Africa or the jurisdiction they work in?

At the moment, there is a lack of awareness amongst South African expats. While some of the legislation is not in effect yet, there is a possibility that some South Africans could already be in breach of the new terms of the tax laws, since it is thought that most South Africans working in the UAE or GCC have failed to lodge any tax returns.

Cape Town

It is pertinent to note that SARS is already in the process of prosecuting taxpayers who are not complying, and in certain situations they have an option of imprisoning offenders for approximately two years.

It has been noted that the Parliamentary process last year was inclined towards people making last-minute changes; in essence, a person who has been an expatriate for a period of time who emigrates right before the new tax laws are implemented; their actions will be closely scrutinized with suspicion by the authorities.

What we know:

1. The treatment of different expatriates concerning the new tax laws will be determined by the ‘tax residence’ of the person.
2. It is indicated that remuneration beyond R1,000,000 will be subject to tax.
3. Submission of an annual tax return will be compulsory.
4. The maximum rate of tax effective 1 March 2020 for a South African expatriate payable on their foreign income will not exceed 45 percent.

What we do not know:

1. The definition of foreign remuneration and what it will encompass.
2. It is likely that fringe benefits enjoyed like allowances for housing and transport will be taxable, though a clear indication is not present.
3. No clarity is available as to how the end of service benefits will be affected. The employers in the UAE pay gratuity to their workers at the end of their contract. This also depends on the length of the service of a worker. If it is assumed that an expat earns a minimum of R1 million, the approximate gratuity would be worth around R225,000 when converted, which would be subject to 45 percent tax. It is unclear if this is how gratuity will be taxed or if some other measure will be put in place.
4. Whether obligation to report will be placed on the employers.

What do South African expats need to do to comply?

It is important to note that the Income Tax Act and the amendment therein will hold priority over any Double Taxation Agreement, which means South African expats in the UAE cannot continue working without paying all relevant taxes in South Africa.

It will be essential to determine the tax status of South African expats working in the United Arab Emirates. Since the impact that this amendment will have on each South African expat working in the UAE will be different, one should seek professional advice.

That said, a procedure called Financial Emigration will allow a South African expat to avoid criminal prosecution. By notifying SARS and the South African Reserve Bank that they no longer wish to hold the status of ‘ordinary resident’ under the law, their status can be changed from ‘resident’ to ‘non-resident’.

People walking around the Nelson Mandela statue at the Union Buildings, Pretoria.

Under this process, the South African ceases his status as a tax resident of South Africa, meaning they will not be liable to pay any tax under the South African law for their income from overseas.

However, they are still obligated to declare any income source in South Africa which may be taxable. An example of this would be rent from an asset owned in South Africa.

It should be noted that Financial Emigration does not affect the passport or citizenship of the South African in any way.

With the limit at over $75,000 per year, is this likely to impact many people?

R1 million may sound like a high enough limit to exclude many expatriates. However, the problem may lie with the expat’s ‘employment income’ which includes other extras and fringe benefits that are often not considered as economic earnings.

Foreign expatriate packages with perks such as house allowance and flights, which are considered foreign income, will find they contribute to the R1 million threshold, and it may mean they are taxed despite their salary.

Do companies who employee South African expats need to do anything?

As far as a specific obligation on the employers to report on South African expatriates is concerned, there has been no comment so far.

Will this put South African expats off traveling abroad to work?

For potential South African expatriates who wish to work abroad, they will need to consider all the points mentioned above to make an informed decision about working overseas. It is recommended they seek professional advice before making any decisions.

The ambiguity related to the law will become clear over time when the procedure for implementation and its impact have been highlighted. The law has been silent on different aspects of South African expatriates, their status, their obligations, liabilities, and uniform procedure to conform to the new expatriate laws as amended.