If you are one of the 900,000 or so South Africans living abroad, this article is for you! We’ve put together this document so you can work out where you stand with regard to taxation. While every effort has been made to ensure that the information outlined here is correct, Infinity is not a taxation specialist and this article is best used as a starting point to better understand South African residency criteria. If you need to pursue this further, we can refer you to one of our partners who will be able to give you advice based directly on your circumstances.
Resident or not?
Since 2001, South Africa’s tax system has operated on a residency basis, as opposed to the source based system previously in place. It is important to work out whether or not you are classed as a resident as this can obviously have far-reaching implications. It is entirely possible to live abroad for many years yet remain a South African resident although often expats are not aware that this is the case.
For tax purposes, the definition of residence is any natural person who is ordinarily resident in South Africa or who meets the requirements of the ‘physical presence test’. What complicates the issue is the lack of a definition of ‘ordinarily resident’ which is a term open to interpretation under common law. To simplify what is a complex issue, if you have lived and worked abroad but intend to return home to South Africa at some point you would normally be classed as ordinarily resident. Your stay abroad may be decades long but an intention to return makes it temporary.
Taxation for South African residents
Under the residency system South African residents are taxed on their total global income, including capital gains. If you have relocated and are working abroad it is entirely possible to also be tax resident in another country if you spend more than 183 days in a tax year there (or whatever period applies according to that country’s residence criteria). Does this mean paying tax in both jurisdictions?
South Africa has double tax agreements in place with many countries to avoid this and you can find a list on the government’s website here. If there is no double tax agreement between the country you are working in and South Africa, residents may pay tax twice (see exemption below).
Tax treaty relief should never be assumed – it is important for expat South Africans to adhere to processes and protocols laid out by the South African Revenue Service (SARS). Taxpayers must claim relief and SARS will confirm whether or not an individual qualifies.
Foreign employment income-tax exemption
In addition to relief via a double tax treaty, tax relief may apply under the foreign employment income-tax exemption. This relates to foreign earnings from employment only and applies if the following criteria are met:
- You spend more than 183 full days outside South Africa during a 12-month period;
- You spend more than 60 consecutive days outside South Africa; and services are rendered outside South Africa during the 12-month period.
New legislation will come into force on 1st March 2020 with regard to this exemption. From that date the exemption will apply only to the first one million rand of remuneration from foreign employment.
Foreign tax credits
South African residents can also claim a foreign tax credit against tax payable in South Africa. This will apply to foreign taxes paid on South African sourced taxable income and is subject to certain limitations. You will find further information on the SARS website here.
Renouncing South African residency
If you have moved abroad and have absolutely no intention of returning to South Africa to live you can renounce your residency. This is an extreme step to take and should be considered very carefully before proceeding. Note that a capital gains tax exit charge is payable based on deemed disposal of worldwide assets at market value on the day prior to renunciation.
Once residency is renounced, an individual is only taxed on income sourced in South Africa e.g. rental income from a property or remuneration for work carried out or services rendered to South Africa (even if that work is remunerated elsewhere).
It is worth noting that exchange control limitations are placed on individuals who renounce residency. Assets and capital which can be taken out of the country are limited to the following allowances:
- A foreign capital allowance of 20 million rand per calendar year for a family unit or 10 million rand per calendar year for a single person.
- A one off allowance of 1 million rand
- Personal and household effects up to an insured value of 2 million rand including motor vehicles, trailers, caravans, motorcycles, stamps, coins and minted gold bars
Approval is required from the exchange control authorities for exports above these allowances. Remaining cash balances or capital payments from the sale of assets must be kept in a dedicated and authorised ‘emigrant capital account’ but can be used in South Africa.
For South Africans who plan on returning to South Africa and are looking for suitable retirement planning solutions, we can recommend a pension scheme which is a tax-efficient way to save for retirement and favourable to drawing money into South Africa from a personal investment portfolio. If that is of interest to you, please get in touch today at firstname.lastname@example.org – we’d be happy to help.
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