South African citizens working and living abroad are preparing themselves for the new amendments to the Income Tax Act, set to come into effect from 1 March 2020.

In 2017, the National Treasury and SARS announced major changes in the tax exemption on South African expatriates.

Dubbed the ‘expat tax’ by media and the financial industry, the amendments mean that South African tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

Graeme Palmer, a director at law firm Garlicke & Bousfield, explains that an exemption currently applies to South African tax residents who provide services outside South Africa on behalf of an employer for longer than 183 days during a 12 month period.

The exemption only applies if during the same 12 month period a person rendered services outside South Africa for a continuous period of at least 60 days, he said.

“If this criterion is met the resident is exempt from income tax on such foreign income in South Africa.

“The amendment now provides that a person who meets these requirements will only be exempt from income tax in South Africa up to the first R1 million of their employment income earned abroad.”

It is important for expatriates to understand that the exemption only applies to South African tax residents working abroad, Palmer said.

“These are persons who are still ordinarily resident in South Africa or have been physically present in South Africa for a statutory specified number of days each year over a five year period.

“Expatriates who have been living abroad for many years or who have emigrated are unlikely to be effected by this law. They will only pay tax in the country where they now live and are employed.”

Read: Rising emigration a threat to South Africa’s shrinking tax base