SA Tax System Penalises Foreign Nationals

by Robert Lee, Tax-News.com, London

16 August 2002

In a statement released on Wednesday, Deloitte & Touche Taxation Services associate director, Peter Harrison warned that South Africa's tax regime actively discourages the very groups that the government professes to want to attract.

The South African government has set itself the aim of increasing foreign direct investment, attracting hard currency, and encouraging expatriate workers to locate in the country in order to address the skills shortage which exists in some sectors.

However, Mr Harrison argued, several provisions within the country's tax regime actually penalise foreign residents and investors, making the country increasingly unattractive to hard currency investors and expatriate workers alike.

Citing the introduction of capital gains tax as an example of this, the Deloitte and Touche executive explained the implications of the levy for foreign residents of South Africa:

'Firstly, any growth in their capital assets, measured in terms of a depreciating rand, will be taxed over the period in which they are regarded as resident in the country, even if the assets are located overseas and they remain unsold.'

'On becoming tax resident here, the expatriate is given a tax base for capital gains tax equal to the market value of his assets. This exempts the accrued gain up to that point, but when he ceases to be a resident when his tour of duty is complete, he is treated as having sold his assets at their market value,' he continued.

'The difference between the two values is taxed as a capital gain, so if an expatriate's fixed property or investments increase in value while he is resident here, South Africa claims the right to tax that increase.'

Mr Harrison added that a foreign national bringing any hard currency into the country after becoming resident also stands to be taxed on the rand's depreciation.

Unless these legitimate concerns are addressed, he warned, expatriates should think very carefully before bringing any hard currency into the country.

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