Tax Implications For Expatriates With Foreign Pensions

South African Expatriates – Targeted Again in Budget 2018/19

The Budget 2018/19, once again, has not been kind to South African expatriates. Last year, in the 2017/18 Budget Speech, they targeted our normal salary and benefits. This year, their sights are set on a far bigger prize – they now want to come after our offshore retirement.

Tax Law Changes by Ambush

When last year’s tax announcement was made on expatriates, many fellow South African expatriates believed at first this was fake news. They listened to the whole budget speech, again-and-again, but could not find the announced tax law change. The actual budget announcement is a mere publicity stunt; with the damage hidden in the detail.

Last week, hidden in Annexure C on page 131, under perhaps a misleading heading, they have announced – 

“Tax treatment of contributions to retirement funds situated outside South Africa: The Income Tax Act currently exempts all retirement benefits from a foreign source for employment rendered outside of South Africa from taxation. The interaction of this exemption with double taxation agreements and other provisions of the Income Tax Act will be reviewed to ensure that the principle of allowing deductible contributions only in cases where benefits are taxable is upheld.” 

We Cannot Trust This

We have seen the narrative before.  The previous year’s Budget Speech announcement also materialised to be a far cry from what was factually implemented. Initially they only suggested to tax certain classes of South Africans who were not paying tax anywhere. In the Parliamentary session they conceded that the plan, all along, was to repeal the whole exemption. 

What Items Are At Risk

The following items are at risk:

  • End of service benefits and gratuities, including amounts payable under labour law on termination of contracts.
  • Compulsory employer pension payouts.
  • Offshore pension scheme benefits, relating to services rendered outside South Africa.

The most alarming part hereof is that this law change is effectively retrospective legislation. Some expatriates have worked for years under a specific dispensation to build-up a sufficient retirement; but changing the law now will have a material effect. No-one will have enough retirement and we need to demand greater certainty.

The Prior Year Items Still Unresolved

They have also not made an announcement in this year’s budget on items which we hope they would still be consulting on. These include –

  • Currency conversion rates. The R1m exemption is a moving target taken the high volatility of the ZAR.
  • Fringe benefits. There are many benefits which are taxable under South African law and which are fully taxable under South African law. We need exemptions for these items which should not be economically taxable.
  • Expatriate allowances. There are many allowances paid to expatriates to cover genuine costs of expatriation. These are taxable under the current law, and the tax law does not give a corresponding tax deduction; even where the genuine expense is proven to be incurred.
Call To Arms

As we reach the end of the 2018 tax year and we have only two more tax cycles before 1 March 2020 it is vital that our expat support base of the TPG – Tax Petition Group – continues to grow and with your donations our ability to flex our financial muscles to counter increasing measures by the government to increase revenue streams by tapping into incomes earned by South Africans working abroad.

The change in governance has brought hope to many a South African that both the economy and health of South Africa will improve. We can, however, expect in turn that our Treasury and Receiver Of Revenue will become more streamlined and focused on refining tax laws and processes to fund the huge fiscal shortfall and we cannot assume that tax laws on foreign income earned will not be changed within the next couple of years impacting our pockets.

We please need your continued support hereon.

Please let me know of instances and examples which we still need to address, so that we can again build our case and protect the interests of expatriates and the many South Africans whom we support.

Barry Pretorius

TPG – Chairman


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