Section 12J benefits for expat taxpayers
South African income tax legislation exempting South African tax residents working abroad, from paying income tax in South Africa on their world-wide income, has changed significantly from 1 March 2020.
Prior to 1 March 2020, expats working abroad were exempt from paying income tax, if they were outside South Africa for more than 183 days in any 12-month period and, during the 183-day period, 60 days were continuously spent outside South Africa.
From 1 March 2020, expats are only exempt from paying tax in South Africa on the first R1.25 million earned abroad. All earnings above R1.25 million will be taxed in South Africa. To avoid double taxation, expats will be able to claim a tax credit in South Africa, for taxes already paid abroad.
- As an example, if an expat is based in Country X and earns R2.5 million, the first R1.25 million earned would be exempt from income tax in South Arica and the remaining R1.25 million would be subject to income tax, less (if applicable) any tax credits.
Section 12J investments can reduce expat tax liabilities
Section 12J investments are tax deductible investments introduced by Treasury to encourage South African taxpayers to invest in the local economy. The benefit to an expat for making a Section 12J investment will be a reduction in the expat’s taxable income (and a potential return on the investment), thereby reducing his/her income tax liability.
Using the earlier example, the expat faced with a tax liability in South Africa, can reduce his/her tax liability on the R1.25 million to zero, by investing in a Section 12J investment.
See the below table illustrating the benefits for an expat to invest in a Section 12J investment:
|Individual*||No Section 12J investment||Section 12J investment|
|Income/Remuneration||R5 000 000||R5 000 000|
|Section 10(1)(o)(ii) Allowance||(R1 250 000)||(R1 250 000)|
|Section 12J Investment||(R2 500 000)|
|Taxable Income||R3 750 000||R1 250 000|
|Tax liability at 45%||R1 687 500||R562 500|
*assuming the individual is in a foreign jurisdiction where there is no double taxation agreement and the income tax rate is zero.
Looking to start a 12J VCC?
Jaltech’s asset management division forms, administers and manages Section 12J Venture Capital Companies.
What is Section 12J?
Jaltech’s website contains extensive information on Section 12J.
Section 12J Training
Looking for face to face Section 12J training? Jaltech offers an in-depth Section 12J training courses at no cost.