South African Tax Law Amendment Bill Commentary

Tax Planningexpats

There has been a lot of noise in the South African expat community around the Draft Taxation Laws Amendment bill (DTLA), specifically the proposed removal of the 183 day foreign tax exemption. This is of particular concern for those living in high living cost environments such as the UAE.

With an estimated 120,000 South Africans in the UAE alone this can become a problem for not just the expats but also South Africa as a country. With the high living cost comes a high salary in Rand terms, as a result most will fall into the higher tax brackets. As most expats living in the UAE can attest, having to pay 45% of your income to SARS is unsustainable to all. This will create one of two scenarios.

The first being, not being able to afford living in the UAE, most will have no option but to return to South Africa jobless, adding to the already depressing unemployment rate. This will halt foreign direct investment coming into the country from savings. Additionally, a lot of money is sent back in support of families back home that rely on this source for survival. This unemployed migration will put further strain on the social welfare system and drain public finances further.

The second scenario will be mass public disobedience on a scale similar to that of the notorious highway toll system, Gauteng’s E-tolls. With the inability to resource the affective enforcement of mass public disobedience on this scale, most will see this as their only option. South African institutions will be forced to deploy more scarce resources to combat this, with not a lot of return for it.

Luckily for South African expats, the DTLA is still in public comment, with hopes for cooler heads to prevail. In the meantime, we can look to the tax treaty signed between South Africa and the UAE in December 2015 for potential solution.

In this treaty, there are specific criteria outlined for tax residence status to prevent double taxation and the treatment of tax residence in the UAE. Considering there are no direct taxes, but hidden taxes and Government charges, an argument can be made that one is in fact subject to taxes. In order to solidify tax residence status one can apply for a UAE Tax Domicile Certificate through the Ministry of Finance. This allows South Africans to sit on the UAE side of the tax treaty, avoiding consequences of the removal of foreign exemption. This official domicile will work similarly to being in any other countries tax environment.

With the DTLA bill in public comment, we are still to see the final piece of legislation to go before parliament for a vote. In the meantime it is recommended to get your tax returns up to date, and start putting in place the certificate to avoid any nasty surprises down the road.

For further information on attaining this certificate, please contact your Credence International consultant below for assistance.