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Tax Implications for South African Crew

South African yacht crew face new tax implications, with SARS (South African Revenue Service) introducing an Expat tax amendment to the South African Income Tax Act, already prosecuting South African taxpayers who are non-compliant, but planned to take effect in March 2020.

It means South African Yacht Crew and all South African tax payers working abroad will be liable to pay tax on their foreign earnings, once those earnings reach over R1 million per annum.  An earning threshold that’s not just made up from cash components, but the total package, so for yacht crew if you get your accommodation, food and any travel, transfers or tips, everything you earn will be thrown into the same pot.  So your salary can very quickly get over that R1 million threshold.

Previously the South African Income Tax Act stated that SA’s working abroad, who met certain requirements, earning a foreign employment income and paying tax in that country, could be fully exempt from tax in SA, but with the new amendment, you will need to meet the same requirements but only the first R1 million per year will be exempt, anything above will be tax deductible.

So, watch out for the possibility of paying double tax, Tax Consulting SA are currently looking at mechanisms to stop double tax but there are complications which need to be ironed out.

Factors which employers will have to consider carefully when looking for crew too, will SA nationals become a less attractive option?  Although highly skilled, they may become too expensive to employ, making other nationalities with less punitive tax to pay a more financially viable option.

Forget thinking you can slip under the radar too, The Common Reporting Standard means that globally banks and tax authorities share individuals’ information so SARS will find out if your tax liability hasn’t been fulfilled.

The change in tax law is causing some SA tax residents to seriously consider their Tax Residency.  A separate issue from citizenship or where you’re currently residing, are the two tests under the South African Income Tax Act which consider how you’re a tax resident. The first is a Day Test which looks at how many days you’re in South Africa and if you meet the requirements you automatically become a tax resident, so you pay SA tax.  The other is Ordinarily Resident Test, which is more about your intention to reside, where you want to be a tax resident, where you have to demonstrate objective factors that prove your intention.

There is concern within SA that to avoid the expat tax, SA tax payers working abroad will seek financial immigration, whereby proving themselves a non tax resident through the tax residency test, in which case if they’re confirmed a non-SA-tax resident they become exempt from the expat tax, their foreign income is safe, the downside though is that they won’t return to reside in South Africa.

With the further complication of the cap currently expressed in Rand and its huge fluctuations, it’s hard for South Africans to plan what they’re earning, so there is currently an initiative to push through an amendment whereby the currency is stated in a stronger, more stable currency which could change the view of the cap altogether.

Tax Consulting SA are working to try and tweak the amendment in line with the views of thousands of South Africans currently working abroad, with a little time on their side before it becomes law in 2020.

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