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New tax plan for overseas work will have hefty impact - expert

Aug 19 2017 16:00
Liesl Peyper

Cape Town – National Treasury’s proposal to repeal an exemption to avoid double taxation of South Africans who work abroad will have a significant impact on a number of individuals, says Natalie Napier, partner at Hogan Lovells specialising in tax law.

“A number of people are making use of these exemptions, for example pilots who work for other airlines and auditors who are gaining experience working at overseas firms, so it’s not just one set of individuals,” Napier told Fin24 by phone.

On Wednesday, National Treasury briefed Parliament’s standing committee on finance on a number of new tax proposals contained in the draft Tax Laws Bill and the draft Tax Administration Laws Bill – one of which is a contentious bid to repeal the foreign employment income exemption to avoid abuse of this measure.

Under the current arrangement, South Africans who work overseas for a period of longer than 183 days pay tax in the country where they are working and are exempted from paying tax in South Africa.

However, this exemption, National Treasury argues, creates the opportunity for double non-taxation where no or very little tax is applied in the foreign country and National Treasury intends on repealing this section in the Taxation Laws Amendment Bill.

The proposals will be subjected to public hearings at Parliament on August 29 where interested parties will give input.

If implemented, and Napier is of the view that this is very likely, individuals who work overseas will have to account for tax in South Africa and the best that these individuals will get is a rebate for the tax they pay offshore.

“So what they’d have to do is fill in the tax return in South Africa and declare what amount they’re paying in taxes in the offshore jurisdiction,” Napier explained.

“Then the South African Revenue Service (SARS) could potentially set off the amount of tax paid in the foreign country against the amount that should have been paid in South Africa and either deduct it, or take it into account in the calculations.”

Napier said the impact will vary according to the typical tax rates of an offshore jurisdiction, but it could potentially mean that someone who works in the Cayman Islands – where there is no tax payable – could be liable for the maximum marginal tax rate in South Africa which is currently 45% on his or her foreign earnings.

“This could be a very unattractive position, especially if someone works in a no tax or low tax jurisdiction.” 

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