Several organisations and individuals that are affected by the amendment to the foreign income tax exemption for South Africans who work abroad, made submissions to National Treasury at the end of last year.

According to industry players, Treasury has now agreed to hold a special workshop on the matter this month, mainly due to the “importance and extent” of the submissions which it received.

In terms of the amendment, tax-free income earned outside of South Africa will be limited to R1 million from 1 March 2020, and any income above that will be taxed at a potential marginal tax rate of 45% in South Africa.

Industry bodies are asking that the cap should exclude benefits, which are “a necessity” in some countries. They also voiced their concerns about expressing the limit on foreign tax-free income in rand terms. The South African Institute for Tax Professionals (SAIT), Tax Consulting South Africa, the Expatriate Petition Group (EPG) and the South African Rewards Association (SARA) are amongst the entities who submitted proposals to be considered for the February budget.

A survey by TPG, who has about 20 000 members, found that around 30% of the people surveyed worked in the United Arab Emirates, that half of expatriates are obliged to pay tax, and that the average marginal rate is 15%. It also found that 26% of the expatriates’ foreign income comprises benefits and allowances such as medical aid, housing, school fees, security and hardship subsidies. More than 70% confirmed that they would exceed the R1 million threshold if their remuneration package is converted to rand.

SAIT said in its submission that it was clear that the R1 million exemption provided little relief for “typical employer-sponsored assignees, who are normally provided with a number of assignment specific benefits”. Jaco la Grange, chair of SAIT’s personal tax work group, said earlier these benefits were not geared at enriching the assignees, but rather towards ensuring that they were no better or worse off due to their “employer-initiated transfer” and at providing them with a quality of life equivalent as possible to that which they would have enjoyed at home. SAIT noted that residential accommodation was often a large part of international assignees’ packages, irrespective of whether they lived in Rwanda or the UK.

Due to the high cost of accommodation, this benefit alone could erode the R1 million exemption, La Grange said. They proposed that “employer-provided” accommodation be excluded from remuneration.

The volatility of the rand and the decision to express the cap in rand terms remains a serious concern. SAIT proposed that the exemption be pegged against a more stable foreign currency, especially considering that the salary packages of the majority of individuals were based in a foreign currency.

Tax Consulting South Africa said – using the XE Corporation’s historical rates – that fluctuations in exchange rates over the past decade had been glaring. For the rand/US dollar it was 106%, rand/euro 61%, rand/British pound 33% and rand/Emirati dirham 106%. “Essentially, a factor such as the political climate in South Africa or which member of the cabinet retains their job may dictate how much tax expatriates will have to pay,” said Tax Consulting in its submission.

SAIT also requested an annual increase in the cap. If the exemption is specifically intended to support low- to middle-income individuals who work abroad – such as nurses and teachers – there is an argument that the exemption cap should be increased annually to accommodate annual salary increases.

SAIT also referred to the expected increase in applications for a tax credit as a result of the limited relief and potential double taxation – where, on the same income, a South African will now pay tax in the host country as well as in South Africa.

Although there will be no final double taxation – because of the ability to claim credit for the tax paid in the host county – the individual will clearly be in a “negative cash-flow situation should payroll tax withholding take place simultaneously in two jurisdictions,” SAIT stated in its submission.