South Africa Plans To Scrap Offshore Tax Break For Workers

South Africans face a tax crackdown on offshore earnings under a new government proposal.

The measure will scrap the current rules that allow South Africans to work in another country for half the year without paying tax on income.

If the change is adopted, South Africa will become one of only three countries in the world taxing citizens based on nationality rather than residence.

The others are Eritrea and the USA – where a campaign is underway to make the ruling Republican Party keep an election pledge to repeal the controversial Foreign Account Tax Compliance Act (FATCA) which demands foreign financial institutions tell the Inland Revenue Service information about accounts and investments held by US taxpayers overseas.

Tax on all overseas income

The new South African proposal will tax all foreign earnings regardless of how long someone works outside the country.

The rules also take away any benefit of working in a zero or low tax country as they will subtract tax paid overseas from the rate of tax due in South Africa and leave a balance to pay.

For example, a 45% South African tax payer in the UK paying tax at 20% will have the 25% balance to hand over in South Africa, while the same taxpayer in Dubai with a zero-rate in the UAE would pay 45% at home.

Nigel Green, CEO of expat financial firm deVere Group has slammed the proposed change. He is a leading member in the repeal FATCA campaign in the USA.

“The move is totally unjust and breaks the cornerstone principal of taxation: that the taxpayer receives government services for their taxes, such as healthcare, education, roads and police services,” he said.

Draconian move

“These plans are highly discriminatory. It is simply unfair to tax someone because of their citizenship. Indeed, residence and or territoriality are the only criteria upon which a fair income tax system should be based.

“This draconian move to double tax South African expats effectively shackles them to South Africa and they would no longer enjoy the same freedoms as almost everyone else in the world.

“Under these proposals, they would be persecuted for living abroad.”

The measure is currently out for consultation along with other budget proposals until August 18.