Here comes the rain again
With 1 March 2020 being the sunrise of the expatriate tax, the first tax payment will become due 31 August 2020. With the first provisional tax payment being due on 31 August 2020, there is some confusion regarding whether expatriates should be provisional taxpayers or not. This confusion is, of course, attributed to the lack of knowledge on who is regarded a provisional taxpayer and what provisional tax is all about.
Blame it on the weather man
Very simply put, a provisional taxpayer is any person who receives income (or to whom income accrues) other than a salary. Most salary earners are therefore non-provisional taxpayers if they have no other sources of income. This general rule, however, is not necessarily true for all expatriates who only earn foreign employment income.
In terms of the fourth schedule of the Income Tax Act, a provisional taxpayer is defined as any natural person who derives income, other than remuneration or a natural person who derives remuneration from an employer who is not registered for employees’ tax. Therefore, it is particularly important to note that, despite only earning foreign employment income, where the employer of an expatriate is not registered for employees tax and does not withhold PAYE, such expatriate will be regarded as a provisional taxpayer.
Once it has been determined that one is a provisional taxpayer, it is not a mater of choice whether a provisional tax return should be submitted, but a must. Therefore, all expatriates falling within the definition of a provisional taxpayer are legally required to submit a provisional tax return.
Shelter from the storm
Being required to submit a provisional tax returns involves some level of understanding what provisional tax is and the purpose of provisional tax in order to appreciate the benefits associated with being a provisional taxpayer.
First and foremost, to clear the air, provisional tax is not distinguished from income tax. Provisional tax is merely a process in which a taxpayer is required to pay towards their tax liability in at least two amounts in advance. This prevents the taxpayer from having to pay over large amounts of tax due on assessment at the same time. The purpose of provisional tax is, therefore, to allow a taxpayer to pay income tax during the tax year in which the income is earned in the months of August and February in every tax year of assessment.
Consequently, despite appearing to be a further administrative burden, provisional tax is particularly beneficial to expatriate taxpayers. This is because, where their employer would have been withholding tax, the taxpayer would have found that upon assessment, their tax liability would have been settled at the time. However, where an expatriate’s employer does not withhold tax which is paid over to SARS, provisional tax ensures that the taxpayers tax affairs are up to date on a biannual basis and their tax liability is paid over to SARS in two separate payments in a year..
Provisional tax further encourages tax planning where the taxpayer is actually able to anticipate what their tax liability will be for the tax year of assessment, and therefore provides them with the opportunity to save in order to be able to fulfil their tax obligations when they arise.
Here comes the sun
As a company that proactively works towards ensuring that its client’s tax statuses are up to date and compliant, Tax Consulting South Africa provides an Expatriate Calculation Service that specifically serves the purpose of ensuring that provisional taxpayers are exercising due diligence on their tax affairs.
The Expatriate Calculation Service ensures that the taxpayer knows their liability and forms the basis for any planning needed ahead of the first provisional tax payment due in August 2020. It is a bespoke service which is tailor made for each individual and further takes into account fringe benefits, exchange rates, bonuses and tax credits.
With the foreign employment income exemption being limited to R1,25 million per annum and the Rand being significantly weaker to the dollar, the Expatriate Calculator Service is of particular relevance to the provisional taxpayer as it gives them a full view of their tax liability and insight on how they can further reduce their tax liability based on their circumstances.
All is not doom and gloom
Although the first expatriate tax payment is due 31 August 2020, it should not be all doom and gloom for South African expatriates. Being a provisional taxpayer serves the purpose of alleviating the tax burden of a taxpayer. Furthermore, with services such as our Expatriate Calculator Service the taxpayer can be at ease knowing what their tax liability would be and therefore being able to plan and make means to save for any tax liability that they may have.