For those of you who work outside of the country, especially those of you who find yourself working in the Middle East regions where you are exempt from paying tax, you are probably very used to the 184-day rule.

Yup, you know the one.

Well, I have some bad news for you: while you might have found yourself in a very cosy situation, all that may come to an end.

But first, for those of you who might be unaware of the rule, let me break it down for you:

The 184-day rule is linked to “services that are rendered outside South Africa,” explains BizNews. If you work outside of South Africa and spend a total of 61 continuous days, and an aggregate of 184 days in any 12-month period, “the remuneration that you deride for those services outside the country will be exempt from South African tax.”

Basically, you won’t be taxed on those earnings.

Are we all on the same page? Great – now let’s get to how it’s all going to change.

In Pravin Gordhan’s budget speech last month, he proposed a change to the 184-day rule which originally served the purpose of mitigating double taxation because living or working in another country would include taxation in that country.

But now, going forward, the proposal is to change all that. Especially if you work in a country that doesn’t require you to pay taxes.

Alec Hogg wanted to find out what Gordhan’s proposal meant so he asked Shohana Mohan, head of Individual and Expat Taxes, what it was all about.

Here’s what went down:

Q: If somebody goes to Dubai, works there for six months and one day, so meets that 184 rule, comes back to South Africa, and works for South Africa for the rest of the time; do they not pay tax in either jurisdiction?

A: It’s not all remuneration that will be exempt from South African tax, it’s only for the remunerations, the actual work pay that the individual spends outside, rendering a service that will qualify for the exemption.

So, if the person in your example spends six months and one day, so 184 days outside the country, but then he comes back to South Africa and he works back here, then the normal sourcing rules will apply and the work pay that he sends back here will be taxed in South Africa.

Q: Alright, so there’s no way of dodging that, but now let’s start understanding how it’s going to affect those tens of thousands, if not hundreds of thousands of South Africans who are plying their trade in low tax regimes like perhaps, the Middle East, what is it likely to mean to them?

A: For them, what it’s likely to mean is if they’re not paying any tax, like the Middle East Regime, it will mean, going forward, if the legislation does get enacted (and let’s just maybe take a step back, this is just a proposal, so it’s not yet enacted and I’m sure there’ll be a series of consultations around this before anything gets enacted in the legislation), it would mean that employers would have a liability and responsibility to make sure that tax is paid in South Africa.

For example, when an individual is about to leave on an assignment to a foreign jurisdiction being a no-tax jurisdiction, this particular cash flow benefit that now exists where the employer can elect not to pay the tax in South Africa, will now fall away. So that individual will actually not score by not paying tax any more in another country or in South Africa.

Q: What happens if you’re working there full time, if you don’t work here at all in South Africa, if you’re working in Dubai for the whole year, do you still have to pay tax in South Africa according to this new proposal?

A: Correct, so in terms of the current legislation, if you work for the full 12 months outside the country, there’s no sourcing back to South Africa, so there’s no work paid back in South Africa, so technically the full remuneration that you deride for those services outside South Africa will not be taxable, but in terms of the proposal now, it means even if the person works for a full 12-month period outside and doesn’t pay tax in that foreign jurisdiction, then the income will be taxable in South Africa.

Pretty deep, right?

But why the changes? According to Mohan it’s all in an effort to avoid double non-taxation, even though the proposed law will still affect many, especially those who have found work in countries such as Bermuda, Monaco, the Bahamas, Andorra and the United Arab Emirates.

If you happen to be one of them and find yourself highly concerned about your future, then you should speak to the professionals over at Galbraith | Rushby.

After all, tax efficiency compliance is critical to everyone and they make sure they keep up-to-date with all changes in legislation, tax court cases and SARS policy – even if they are just proposed.

[source: biznews]