SOUTH AFRICANS WORKING IN AFRICA – HARDEST HIT BY SARS
South African expats are already on the SARS radar due to the amendment of the expatriate tax law, however rotational workers which are those working on a schedule where a portion of their year is spent at work outside SA and a portion at home for “rest” inside SA are now being specifically targeted by SARS. These are typically those on oil rigs, ships and mines. A standard schedule would be 6 weeks work outside SA, 2 weeks rest inside SA.
Due to this type of schedule and lifestyle these workers are the most exposed to the ‘expat tax’ which came into effect 1 March 2020. Speaking with many of these rotational workers on mines throughout Africa, the general consensus in the community is that SARS will not “get a cent out of my hard earned foreign income”. In recent months SARS has most certainly stepped up in this regard specifically targeting such individuals with little to no mercy.
While many South Africans have chosen to cease their tax residency to avoid the expat tax by financially emigrating or where possible claiming tax relief under a double tax agreement (“DTA”), these types of solutions are generally not applicable to rotational workers. As these workers still keep South Africa as their home base, often with spouses and children still at home, the solution of financial emigration or DTA almost always falls away and leaves them with a short list of options to reduce the possible tax liability in SA.
Veiled Attempt to Soften Blow
In February 2020, as part of the budget speech, it was announced that there would be an increase to the cap on the exemption applicable to foreign employment income earned by South African tax residents from R1m to R1.25 million per year from 1 March 2020. While any relief is welcomed and so dearly needed, the increase, if examined closely, barely makes up for the continual weakening of the Rand. Thus, many will not have any actual relief on their tax liability in SA.
Government Fails to Understand True Costs – Full Package Taxable
The largest issue, which has been presented to National Treasury and SARS on various occasions over the past few years, ever since the proposal of the repeal, and later capping, of the foreign employment exemption, has been fringe benefits.
The reason this has become so prominent is because a rotational worker will remain tax resident of SA in almost all cases, and as a tax resident one will be taxable on worldwide income. Income includes not merely the cash component of one’s salary, but every benefit/allowance provided as part of the package to the rotational worker.
From dealings with rotational workers, there is a misconception about the so called “benefits” – understandably so. This is because accommodation, vehicles, security, tax services, home leave flights etc. all fall within the net to be taxed by SARS. Some workers on mines are living in mine accommodation, which is often the very bare necessities, however in terms of South African tax legislation, that accommodation is taxable and forms part of the workers package.
This in mind, fringe benefits clearly, quickly increase the total value of one’s annual salary, and the exemption of R1.25mil promptly becomes a drop in the ocean, leading to an increasing tax liability in South Africa.
Proactive Action or Pay SARS
Rotational workers need to get their house in order. With few options available, and many unscrupulous tax schemes and financial products being punted in the market, which legally do not meet the thresholds to be effective, this vulnerable group of South African workers in Africa are being taken advantage of from all sides.
One needs to find a reputable service provider that understands the intricacies of rotational workers in Africa. Becoming tax efficient is the order of the day. Without which, the unfortunate reality is that much of that hard earned foreign income will be taxable in SA.
Due to the Common Reporting Standards, one is unable to hide their income in offshore bank accounts, which would be in contravention of our legislation in any case. Bank account information and funds is being shared with SARS and thus even if you don’t declare it, it will be found and in those cases, SARS can easily decide to take the route of criminal sanctions a well as raising penalties for understatement of income.
Admitted Attorney & Legal Manager for Expat Tax Compliance