The contractor tax changes impacting South African expats

Contractor tax changes

22nd January 2021

For international contract professionals, the opportunity to move across borders for their next placement has long had some appeal. With the ability to experience new cultures and travel the world (when it’s safe to do so, that is) as well as the exposure that can be gained for your professional development, there are many reasons why contracting globally can be so rewarding.

However, there are constant contractor tax changes being introduced in various jurisdictions that can lead to some expats unknowingly operating non-compliantly. Staying ahead of the latest developments in this area can be highly challenging, but failure to do so could lead to potential fines and even jail terms.

As a case in point, the South African Revenue Service (SARS) has recently revealed that come March 2021, it will have the resources to better detect non-compliance with tax regulations. Here’s what contractors need to know.

Stricter regulation on the cards

According to news aggregator, News24, SARS has taken greater steps to recover taxes from South African expats who have ‘flown under the radar’ for too long. The revenue service has already begun to audit the declarations of its expats in order to identify and take action against any who have been operating internationally without making the required declarations back home.

For contract professionals who are SA nationals, the circumstances are certainly complex, with an individual’s tax residency status used to determine if they should declare their international income with SARS, rather than their physical location or the length of time spent outside of the destination.

It is also important to add that any South African residents moving overseas for a contract will need to follow formal financial emigration processes in order to remain compliant while working internationally. This includes obtaining an Emigration Tax Clearance Certificate when you leave the country.

Expat tax changes

Under changes to the Income Tax Act that were implemented in March of last year, South Africans living and working abroad have been subject to a new expat tax, though the changes allegedly caused some confusion.

Prior to the change, South African tax residents who worked overseas for more than 183 days – with 60 of these to be consecutive – were exempt from paying income tax on their foreign employment earnings. According to International Investment magazine, “South Africans living abroad now have to pay tax on anything above their first R1.25m made outside the country and still meet the 183 in aggregate and 60 consecutive days requirements.”

For SA nationals, this means that when they are working overseas, they are only exempt from being taxed on foreign employment remuneration back home if they earn under R1.25 million. It is important to note, though, that this doesn’t mean an individual will pay double taxes – both in the country of work and in South Africa.

Instead, where a Double Tax Agreement (DTA) is in place with another country, individuals earning over the R1,.25 million threshold will have to pay tax in the foreign country that will then be deducted from the SA tax required under their foreign remuneration.

As many readers may have already discovered, though, the circumstances here are highly complex and contractors are advised to follow expert advice relevant to their working agreement and the rules within the country that the work is being delivered in.

A Foreign Employment Unit

At the same time the changes to the Income Tax Act were brought in, SARS also launched its own Foreign Employment Unit – a taskforce with the sole focus of targeting residents living and working abroad to drive tax compliance and recover funds lost to fraud.

In order to support this dedicated unit as it tackled tax evasion and avoidance, changes were made to the Tax Administration Act in South Africa. This amendment saw the term ‘wilfully’ taken out of the legislation under the information regarding non-compliance. As a result of this seemingly small change, SARS now has ‘greater leverage’ when seeking prosecution from individuals claiming negligence as a defence.

For SA contractors this latter point is a key concern that should be noted. Under this amendment you could still face prosecution even if you did not intentionally avoid paying taxes. Even a simple mistake in reporting could land you in hot water.

A complex compliance landscape

While the above information is specific to South Africa, we can’t overlook the fact that tax compliance is set to become more heavily regulated and increasingly complex.

The cross-border nuances that contractors face now can create a heavy administrative burden on individuals without access to expert support. And with the chance of a small error being picked up by authorities and investigated increasing across the board, contractors simply can’t afford to let one mistake hamper their future prospects.

Aside from the potential financial impact that fines could have on you and the risk of serving time in prison, contractors could also face being banned from a country as a result of non-compliance. For an expert that relies on global opportunities, this is understandably less than ideal and, as a result, it is crucial that individuals ensure they have taken the appropriate steps to ensure they are compliant.

Contractor tax changes: Contact 6CATS for support

Here at 6CATS International, we have a wealth of global tax experience. As a result, we know that contractors working around the world will need the expertise to get the right compliant solution. We have both global reach and local knowledge at our disposal to provide you with compliant, effective, contracting solutions wherever you are working.

As leading experts in international contractor management solutions, we know that demand for contractors is rife across the globe – and we want to make sure that professionals can have a safe and rewarding contracting experience no matter where they choose to work.

Our friendly and approachable team are always on hand to offer support and advice. With some of the most experienced professionals in the sector, we have a wealth of knowledge to draw on and can advise on most countries around the world. In fact, we were awarded the Best International Contractor Provider at the 2020 Contracting Awards.

So, if you want to partner with an award-winning contractor management solution firm, why not contact us today?

And don’t forget we’re on social media – connect with us today to join in with the conversation and stay ahead of the latest international tax developments.




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