SARS warning for South African expats

South Africa’s 2026 Budget left expatriates (expats) exposed, as the unchanged R1.25 million foreign income exemption and tighter SARS scrutiny could mean higher tax liabilities and challenges to previously granted non-resident status.

Tax Consulting SA’s Legal Manager of Cross Border Taxation, Delano Abdoll, explained that the 2026 Budget brought a fiscal package many South African taxpayers welcomed as surprisingly stable and positive.

Rather than introducing aggressive revenue-raising measures, the National Treasury adjusted several tax thresholds to counter inflation, offering meaningful relief to resident taxpayers.

These changes included adjustments to income tax brackets, rebates, and duties, providing taxpayers with relief from inflationary impacts on their tax payments for the first time since 2023/24.

Even the Single Discretionary Allowance, which determines how much money tax residents may transfer abroad per calendar year without the requirement to obtain a SARS Tax Compliance Status PIN letter, was increased to R2 million.

“But while resident taxpayers breathe a sigh of relief, one group appears conspicuously absent from the list of beneficiaries – South African expatriates,” Abdoll said.

“One of the most important thresholds affecting South African expatriates – the foreign employment income tax exemption – remained unchanged once more.”

Under section 10(1)(o)(ii) of the Income Tax Act, South African tax residents earning abroad may be exempted up to R1.25 million of foreign employment income from South African tax per year of assessment.

To qualify, they must meet strict requirements. The exemption applies only to employees, while independent contractors, consultants or self-employed persons do not qualify.

“Any foreign employment income earned over and above R1.25 million is subject to personal income tax in South Africa, applying the normal tax rates for the particular year of assessmentm” Abdoll explained.

The problem, he said, is that the R1.25 million threshold has not been adjusted for several years, despite persistent inflation.

Based on inflation data from Statistics South Africa between 2020 and 2025, R1.25 million in 2020 is roughly equivalent to R1.63 million today.

Growing tax exposure for expats

Abdoll explained that the failure to adjust the threshold now means expats are more easily drifting into higher tax exposure on their South African personal income tax liability.

This is because exceeding R1.25 million in earnings when working overseas is becoming increasingly common.

“Many may feel that while the fiscus has recognised the financial strain on domestic taxpayers and provided relief, their own circumstances have been ignored,” he said.

“In a Budget that otherwise attempted to soften inflation’s impact on resident taxpayers, this raises uncomfortable questions.”

This move may signal a SARS that is not interested in supporting expats by protecting their worldwide income from heavy South African taxes.

As such, it begs the question of whether the only real solution for taxpayers is to formally cease tax residency.

If the existing tax system becomes increasingly unaccommodating for globally mobile professionals, the risk is that more of them may decide to permanently exit South Africa’s tax residency net.

In theory, this should allow them to protect their full foreign-sourced income from local taxation. “But even that path may no longer offer the peace of mind and certainty it once did,” Abdoll said.

He noted that, recently, a worrying development has begun to surface for expat taxpayers. Some individuals who previously ceased South African tax residency and hold a Notice of Non-Resident Tax Status are receiving new correspondence from the taxman.

The letters indicate a review and possible withdrawal of their non-resident tax status. “This is causing significant uneasiness,” Abdoll said.

This is especially the case for some taxpayers who received this communication more than a year after successfully updating their tax residency status to non-resident status with SARS, or after returning to South Africa.

“Now, not even the Notice of Non-Resident Tax Status seems to be foolproof as permanent relief for expatriates from paying taxes on their worldwide income for the time being abroad,” Abdoll said.

For expats returning to South Africa, Abdoll warned that the risk of back taxes is an unwelcome possibility.

SARS scrutiny is here to stay

According to Abdoll, this development aligns with SARS’ broader shift toward intensified compliance enforcement.

Following the 2026 Budget, SARS reiterated that over the past six years, compliance revenue has become a defining feature of its revenue performance and a key contributor to fiscal stability.

The compound annual growth rate of 18.8% in compliance revenue reflects SARS’s move away from relying on economic cycles toward identifying, correcting, and preventing non‑compliance.

“The mandate of SARS is anchored on revenue collection, compliance enhancement and the facilitation of legitimate trade,” the taxman said.

“By dutifully implementing its compliance programme, SARS is well positioned to collect all revenue due to the fiscus.”

According to Abdoll, this means the basis on which expats ceased tax residency, and the documentation supporting it, may increasingly come under scrutiny.

He stressed that any application to cease tax residency must be handled correctly. The cessation must be properly formalised, either through an application for a Double Tax Agreement (DTA), where applicable, or financial emigration.

To avoid serious complications and questions about their tax residency status, expats must ensure that all tax returns for the non-resident period are filed.

All outstanding tax liabilities must also be settled, and any capital gains tax triggered upon ceasing tax residency must be declared and paid.

“A common misconception among expatriates is that leaving South Africa automatically ends their tax obligations,” Abdoll said.

“Leaving the country does not relinquish South African citizenship, does not deregister your tax number and most certainly does not remove your obligation to file a tax return. Nor does it mean that SARS cannot revisit your affairs in the future.”

Expats now face an environment where exemptions are not keeping pace with inflation, and previously granted residency changes may face renewed scrutiny.