With D-Day for overseas tax looming, expats are seeking ways to counter becoming sitting ducks for corner-cutting tax agents coming out of the woodwork for a kill.
Sleazy tax agents have their sights on South Africans working abroad who are jittery about the looming expat tax law changes coming into effect in March, with “experts” warning expats to escape the “shark-infested waters”.
South Africans working abroad would pay up to 45% tax on their income if it exceeded a R1 million threshold come March, and this looming D-day has stirred unease among expats.
This has left expats seeking ways to counter becoming sitting ducks for the corner-cutting tax agents coming out of the woodwork for a kill.
Claudia Apicella, head of expatriate tax compliance at Tax Consulting SA, said SA expats have been flooded with conflicting information regarding the amendment, causing uncertainty and panic in their preparations for D-day.
“The cause for this is no doubt linked to the many ‘specialists’ creeping out of the woodwork, so to speak, and offering an array of tax relief processes for South African’s residing abroad. These portray ‘quick fix’ solutions or incorrectly completed processes at exorbitant costs,” she said.
Apicella cautioned that many services being offered to anxious expats regarding tax relief mechanisms were not in line with the requirements of the South African Income Tax Act No 58 of 1962’s two tax-residency tests, those of the South African Revenue Service (Sars) and exchange control regulations of the South African Reserve Bank (Sarb).
She said one of the most common processes being widely punted was financial emigration and that it has become the weapon of choice when offering SA expats tax relief on their foreign income.
Apicella said, however, that if applied for correctly, financial emigration did offer certainty that one has ceased tax residency in SA.
“The key issue here is that the fundamental steps to achieve this are not always adhered to, thus resulting in a process not correctly done which creates tax exposure for SA expats.
“The harsh reality is that many expats are undergoing financial emigration, taking into consideration only the exchange control aspects thereof, and thus not dealing with important tax implications,” she said.
Tax diagnostic specialist, Nicolas Botha, said the key when undergoing the financial emigration process through an agent was that all compliance steps for the process must be clearly defined to the client.
“From a client perspective, the best first step will be to determine if the provider is offering financial emigration or formal emigration.
“These are often referred to as being the same process. However, this is not the case,” he said.
According to Botha, financial emigration is a two-fold process which included a Sars component dealing with the legal aspects of non-tax residency as well as the formal emigration component dealing with the Sarb aspects of exchange control.
“Formal emigration on its own does not fully deal with the tax aspects.
“The best way to check this is if the company requests you to outsource your tax affairs to a tax practitioner or consultant – meaning they only assist with formal emigration,” Botha said.