SARS on the prowl: Time for expats to come clean. Image credit: AdobeStock
SARS on the prowl: Time for expats to come clean
(Partner Content) Many South Africans who live or work abroad have traditionally taken a “head-in-the-sand” approach with regard to their South African tax affairs. While this is often borne from a belief that one is not taxable in South Africa for income earned abroad, or that SARS will not know about their foreign income and assets. This, however, is not the case.
SARS on the prowl: Time for expats to come clean. Image credit: AdobeStock
Unfortunately, this is no longer possible. SARS, being under steadily increasing pressure to step up its collection efforts, has started auditing non-compliant expatriates en masse.
A South African who permanently relocates to another country must formalise the cessation of their tax residency in South Africa. For those who will ultimately return to South Africa, this means that foreign income must be declared and, where tax is due, this must be paid. Even where an expatriate is making use of a double tax agreement for relief from tax in South Africa, this does not apply automatically and must similarly be claimed in one’s tax return once filed.
Resident until proven otherwise
A person who is a tax resident in South Africa is required to declare their worldwide income to SARS and, where tax is due, this must be paid. A common misconception that arises in most cases is that being physically present in another country means that an amount is non-taxable in South Africa – this is incorrect and a dangerous assumption made.
Tax residency in South Africa is not determined solely with reference to a person’s absence from South Africa, but actually involves an exhaustive and fact-driven enquiry into their subjective intention as supported by objective indicators. This must be determined with reference to the laws applicable, and not necessarily what a person feels should be the case.
In ceasing South African tax residency, it is necessary to ensure that this is formalised with SARS, regardless of whether this is done by following the formal financial emigration process (which is being changed to a more stringent regime from 1 March 2021) or by applying a double tax agreement, for example. In either case, a taxpayer must be able to objectively support the position taken that they meet the requirements for non-residency.
This may come as a shock to those who believe that having left South Africa and being in another country means that they are free from further tax obligations to South Africa. This is especially the case for those who left South Africa without settling their tax debt, regardless of the amount of time that they have lived abroad.
In view of ensuring more effective enforcement, stricter legislation has been promulgated to back SARS’ efforts and with an emerging system for global financial data sharing as support. SARS is now entirely capable of finding which taxpayers have historically been non-compliant.
The writing on the wall
SARS’ new approach is not surprising, as the writing has been on the wall for some time now.
Initially, the first sign that the expatriate tax landscape was changing came in the form of changes to the expatriate tax laws, which came into effect on 1 March 2020. This came off the back of SARS’ launch of a dedicated Foreign Employment Unit, being focused on South African expatriate compliance in particular.
Thereafter, the announcement was made that the current financial emigration law would be amended – in the past, this has been the successful route for one to follow in confirming with SARS and SARB that they are non-resident. This change means that it will be more difficult to cease tax residency and will be replaced with a new, yet-to-be clarified process from 1 March 2021 onwards.
Finally, the term “wilfully” in the Tax Administration Act in relation to non-compliance was removed, which gives SARS much greater leverage in prosecuting a person who claims negligence in failing to meet their tax obligations. This conforms with the rationale for the change in the expatriate tax legislation previously, for which rife tax non-compliance by South Africans abroad was cited the reason during Parliamentary sessions in August 2017.
SARS has thus now begun to pursue expatriates by utilising a dual-pronged approach –
- Through audits calling for individual expatriates to prove their non-residency and objectively prove their intentions – some audits further request proof that the taxpayer had obtained an Emigration Tax Clearance Certificate when leaving South Africa; and
- Through audits on offshore income that is revealed through the common reporting standard (CRS). SARS is now specifically seeking out those taxpayers who have previously been able to conceal their assets and funds abroad, which is no longer be possible in light of the increasing exchange of information between countries.
Options for expats
It is important to know that there are multiple options available to expatriates in ensuring continued compliance.
Those who no longer intend to return to South Africa on a permanent basis can urgently apply for financial emigration until 1 March 2021. It has been confirmed by National Treasury that applications submitted prior thereto will be processed under the current legislation.
Outside of financial emigration, a South African may make use of a double tax agreement between their new country of residence and South Africa. However, given that the tax implications in a double tax agreement will vary in each case, as well as the fact that these agreements do not apply automatically, a taxpayer should seek advice from an expert in expatriate tax in each case.
Where a taxpayer has been non-compliant and has an outstanding tax liability in South Africa, they can approach SARS under the Voluntary Disclosure Programme in order to settle their historic taxes, with interest and penalties, but without prosecution. This process is sensitive, however, as very specific requirements must be met for a valid disclosure to be made.
Inaction is no longer an option, as SARS is evidently now committed to ensuring that expatriate non-compliance is pursued. It is too late for a person to try and rectify their tax affairs where SARS has already identified them – with SARS now having the upper hand and dedicated resources for the collection of taxes (historically and prospectively), it is now important for expatriates to ensure that they stay ahead of the curve.
