It would be an understatement to say South African finance minister Tito Mboweni was under a lot of pressure ahead of presenting his budget on 26 February.
Not just from the rising discontent, inflation or the falling value of the rand; but also the threat of a third junk rating.
The budget document ran 285 pages in total, with just two paragraphs addressing the so-called expat tax.
From 1 March 2020, South African tax residents working in another country will be liable to pay the Revenue Service (Sars) for money earned abroad.
But the budget did lift the annual limit to ZAR1.25m, from the initially proposed ZAR1m (£50,660, $65,600, €60,310).
In good standing
“Government proposes to remove the exchange control treatment for individuals, while strengthening the tax treatment,” the budget outlined.
“The intention is to allow individuals who work abroad more flexibility, provided funds are legitimately sourced and the individual is in good standing with Sars.”
The current rules allow people to transfer ZAR10m offshore, while this remains unchanged anyone breaching this limit “will be subjected to a more stringent verification process”.
“Such transfers will also trigger a risk management test that will include certification of tax status and the source of funds, and assurance that the individual complies with [AML/CTF] requirements.”
This will be phased in by 1 March 2021.
End of emigration?
An interesting twist in the tale, however, was the statement: “Government wants to encourage all South Africans working abroad to maintain their ties to the country.”
This is likely in connection to the rising number of people looking at financial emigration as a way to sidestep the tax.
“Some advisers have recommended emigration, as recognised by the Reserve Bank, as a way to break tax residency. However, this is only one factor considered by Sars,” the budget document stated.
“Consequently, this concept of emigration will be phased out by 1 March 2021”, and replaced by a “verification process”.
It is not clear at this stage if this will have any implications for the financial emigration process.
In a bid to sweeten the pot, however, the budget document states that “natural person emigrants and natural person residents will be treated identically”.
Additional restrictions on emigrants, around investing and using banking facilities, “have been repealed”.
Explanation needed
Mboweni added: “Under existing international standards, South Africa participates in the automatic sharing of information between tax authorities on individuals’ financial accounts and investments.
“These cooperative practices will remain in place to ensure that South African tax residents who have offshore income and investments pay the appropriate level of tax.”
South Africa’s financial intelligence system is also currently being evaluated by the Financial Action Task Force (FATF).
“Concurrently, government is preparing legislative and regulatory proposals to combat sophisticated financial crimes, unexplained wealth and suspicious financial flows,” the budget document added.
