South Africans Abroad

South Africans Abroad: Is your South African Tax Status Correctly Noted? Image: AdobeStock

South Africans Abroad: Is your South African Tax Status Correctly Noted?

South Africans abroad need to familiarise themselves with their options from a tax perspective to avoid being unnecessarily taxed on their foreign income streams.

South Africans Abroad

South Africans Abroad: Is your South African Tax Status Correctly Noted? Image: AdobeStock

South Africa has a strict residency-based tax system with stringent residency rules in place to prevent anyone with any financial ties to the country from evading taxes. If you are a South African working abroad it is important to ensure that you are noted with the correct tax status at SARS.

Two routes for South Africans abroad:

  1. Remain a tax resident and utilize the foreign exemptions

    The South African tax legislation makes provision for exemptions on foreign earned income to avoid double taxation and provide limited relief to individuals working in low-income tax countries. Saffas that intend to return to reside in South Africa will continue to meet the requirements to be tax residents. This means that they will continue to be taxed on their worldwide income and it is important to consider the exemptions available to you to legally minimize or nullify your South African tax liability.

    The primary exemption to apply is the section 10(1)(o)(ii) foreign exemption. This exemption can only be applied to your foreign earnings if you fulfil certain requirements. If these requirements are met, the first R1.25m will be tax-exempt in South Africa. It is important to note that the first R1.25m will include all fringe benefits and allowances, not only the remuneration paid. The exemption is also only applicable to remuneration received for services rendered as an employee and does not provide relief for any other income streams.

    Further to this foreign exemption, it is also possible to apply foreign tax credits for tax already paid abroad. The effect hereof is that you can deduct or get a rebate for tax already paid, and if the percentage at which you need to pay tax is higher in South Africa than in the other jurisdiction, you will still pay the excess amount tax in South Africa. 
  2. Become a non-resident for tax purposes: Tax Emigration vs Double Taxation Agreements

    South African tax residents can cease their residency by way of two methods: either once-off through Tax Emigration or by making use of a Double Taxation Agreement (DTA). To determine which route to take you need to establish what your intention is going forward. “Is your intention to remain abroad permanently? Or do you intend to return to reside in South Africa?”

    If you intend to remain abroad permanently, the best route is to cease tax residency once-off through Tax Emigration. To achieve the non-residency status, you need to prove to SARS that you do not fulfill either of the South African residency tests and deal with the deemed disposal of your assets.

    Should you intend to return to reside in South Africa, and there is a DTA between South Africa and the country you are currently residing in, you are able to cease tax residency on a yearly basis to deem yourself a resident of the other country. This will allow you to submit your tax return each year to declare your foreign earnings fully exempt in terms of the applicable DTA. However, very specific requirements must be met for the application of a DTA to be successful – it is not automatic. 

Contact Leap Group for South African Expat Tax

The importance of ceasing tax residency is unquestionable, especially since the majority of the countries worldwide use the same or similar system. As soon as your intention and factual situation make it clear that you are a non-resident for tax purposes, it must be declared to SARS to formally cease your tax residency. If your intention is to return to South Africa, the foreign exemptions need to be fully utilized to avoid unnecessary tax liability. At Leap Group we help South Africans abroad with their South African tax. Contact us here.