South African EXPAT TAX: Your Questions Answered by the Experts – May 2019

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With South Africans who live or work abroad facing the imminent introduction of “expat tax”, there has been a lot of scaremongering and confusion. Recently the expert tax team at Tax Consulting South Africa kindly offered to answer SAPeople members’ questions. Here you will find a selection of the questions submitted and answers by Jerry Botha, Managing Partner of Tax Consulting SA…

1. Hi there. Thanks for the opportunity to ask questions. I live in Northern Ireland (UK), having left SA in ’96. Have permanent residence in UK and dual SA / Irish citizenship as hubby is from N Ireland. Only worked in SA for 2 years as an intern and junior doctor, only investment in SA is RA (Retirement Annuity) which I stopped in 2003 and is worth around R62,000.

Have not spent more than 3 weeks in SA in the last 20 years. From reading various posts should I be confident that I would be regarded as non-resident?  Who would determine this? I’m not sure that I have a tax number with SARS? How would I be able to find out without actually revealing myself to them?

Jerry Botha: The fact that there is a South African retirement annuity means there is a permanent record in South Africa. Despite all the negative press around SARS IT systems, not all completely untrue; this definitely remains a SARA drive and will become more sophisticated in future.

Our standard guidance is to adopt a conservative tax and compliance position, especially as it appears you are not breaking any law.

Consider doing financial emigration, withdrawing the retirement annuity and close of your South African affairs permanently. This does not risk your South African passport. Getting onto the SARS radar carries effectively zero risks in this instance, as even where you get an enquiry, you can evidence your tax residency in a double tax treaty country. This is a time-consuming and/or costly process, so not something we believe is client-centric, but the point is that you do have Double Tax Treaty protection, where you need it. Where you do nothing, you will anyway need to deal with the retirement annuity one day (currently below the tax threshold).

2. From ‘Family’: This is very scary. I’m really worried about this. We moved 13 years ago and I thought that if you didn’t live in a country and weren’t benefitting from any services, and paying tax in the country you are in, then you didn’t have to worry about tax in SA. What are the ramifications of this law? What can my husband and I do? I am sick to my stomach with fear. What if we now owe back taxes? Is there a payment plan?

The prudent approach is to get your SARS and SARB status checked and to make sure you are compliant. Where you only have not tax filled correctly or complied with formalities – I would just get this fixed proactively, as SARS penalties can be managed where you self-correct. Where you have not been on the wrong side of the law and actually owe SARS taxes, you need to determine your tax liability and then do a SARS Voluntary Disclosure Program (VDP) which is the only approach to follow where there are no penalties or criminal sanction.

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3. From Erwin A: How is the percentage over the threshold calculated? 

The normal rules will apply for South African tax. There were various computational problems highlighted to National Treasury in the last session, but effectively the simple computation will be –

Non-South African Salary: R2,500,000
Fringe Benefits: R500,000
Taxable Income: R3,000,000
Exemption: (R1,000,000)
Taxable Income: R2,000,000

Tax on R2m is determined as follows, which is exactly the same as for all South African taxpayers –

Tax on R1,5m = R532,051
45% on amount above R1,5m = R225,000
Total Tax before rebate = R757,041
Rebate = (R14,220)
Tax Payable before tax credits = R742,821.

Against this amount, you have to claim tax credits, i.e. taxes paid in a foreign country.

See more examples and tax rates on –
http://www.taxconsulting.co.za/tax-rates-2019-2020/

What are the options other than financial emigration?

Where you cannot do financial emigration, you can always claim double tax treaty relief, where you are resident in a Double Tax Treaty and meet the requirements.

There are normally very good reasons why South Africans do not want to do financial emigration, and I recommend those first be unpacked.

If it is because South Africa remains your real and main home, you are correct that you cannot do financial emigration and financial emigration is then indeed not an option for you.

If it is because you want to keep South African assets or retain your South African passport, there is misinformation – both of these are possible despite financial emigration, so you need to investigate further.

4. From Dawn D: I’ve read you cant be double taxed if there is an agreement between SA and the country you living in. Double Tax Agreement?

There can never be double income tax or double capital gains tax, regardless of whether there is a double tax agreement or not. Even where there is no Double Tax Agreement, you can claim ‘unilateral’ tax relief under section 6quat of the Income Tax Act.

The big question is when are you considered a non-resident? My understanding is the minute you own or rent a home is one of the times you are a non-resident?

This is completely incorrect.

5. From Cheryl H: We live in the USA and have done for the last 24 months. We own a house in South Africa which we rent out. The rental amount does not cover all our costs so we are not making any profit on this rental. Can we keep the house, bond and one bank account open and still not pay tax to the SA government?

You will normally assume US tax residency when you arrive there and need to file the US 1040 tax returns from date of arrival. Per the South Africa / United States Double Tax Agreement, the rental property needs to be disclosed in South Africa. This must also be disclosed in the United States and any additional taxes must be paid thereon in the United States.

Also, be careful of the United States capital gains tax on the sale of the property and their capital gains tax rules which are different and taxes are much higher. Thus, you will have to pay South Africa tax on this first and then any additional taxes in the United States.

There is no link between keeping the property, having a bond and paying taxes – these are different concepts and should be treated as such.

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6. From Martin G: I am currently working in Zambia (residential) and have been here for 9 years. We currently do pay in-country taxes as part of our contract. My question is, I only visit/stay in South Africa for about 30 days a year. I still have my house and assets there. Will I be required to pay taxes on the amount earned above R1m?

The question depends on whether you are still ‘ordinarily resident’ in South Africa and, even where you are, you can claim Double Tax Treaty relief under the South Africa / Zambia Double Tax Agreement. The problem with Double Tax Treaty relief is that this is an every year process, so you need to get a Zambian Tax Residency Certificate each year. On other Zambian clients, we have seen the following solutions followed –

Remaining tax resident in South Africa and just claiming the Zambian taxes as credits – this all depends on how much you earn and what benefits you receive. The Zambia effective tax rate is actually quite high.

  • Financial emigration where your intention is to leave permanently.
  • Claiming Double Tax Treaty relief, albeit quite a process.
  • More complex planning solutions for high net worth cases.

7. From Wayn M: Thank you for trying to clear up this tax story. My brother left South Africa about 25 years ago without immigrating to the UK and now has full UK citizenship as well as keeping his SA citizenship. He has not worked in SA since leaving. He owns a property in South Africa which our mother resides in. Can or does he need to do anything in order not to be taxed in SA? Should he offload his property and maybe donate it to our mom or one of his two brothers who are South African? Please advise what needs to be done and if there are any costs involved.

He is definitely not tax or exchange control resident. I would recommend he keep the property (as there will be UK donations’ tax implications otherwise) and just make sure he is formally on SARS and SARB record as non-resident for tax and exchange control purposes.

8. From Aadila R: I have been working in the UK for the last three years. My plan is to return to SA after 4 years, so financial emigration has not crossed my mind.

This would appear absolutely correct.

I do not have any assets in SA. I am currently bordering the R1 million income before tax. It is likely that I will cross the threshold by the next tax year. I meet the tax non-resident definition and UK has a double tax agreement with SA so I have been submitting a nil return and declaring my UK income and paid the taxes.

How will the new expat tax affect me and what are my options, should I financially emigrate and when I do eventually return to SA register with SARS?

Get from the HMRC a UK tax residency certificate and claim double tax treaty non-residency in South Africa each year, following the correct process. Alternatively, get some tax advice as even where you do not claim the double tax treaty relief, I am pretty sure you will have no RSA taxes to pay (note you must still declare to SARS, and claim the exemption and tax credits), as the UK taxes are higher than the South African obligation for all my other clients.

9. From Marnus M: In order not to pay this tax, I understand you need to inform SARS that you are emigrating from a tax point of view (financial emigration) – but still retaining South African citizenship, passports.

Correct – you lose your citizenship and passport only where you obtain a new citizenship and do not follow a correct Home Affairs process.

How should this be done? (What is the process?)

There is a set bank / SARS / SARB process you need to follow and we recommend that you use someone who specialises herein. Our team leader focussing herein is claudia@financialemigration.co.za.

I have a few properties back in SA which I rent out. Will I need to sell them or how will it work? How do I keep them but still emigrate from a tax point of view?

The financial emigration process, or not, does not change property ownership – you can keep them and the normal tax rules apply on rental profits and capital gains when you sell them.

10. From Tersia P: I have a few questions. Please explain the ‘million rand’. What is the R1m based on? My new country’s exchange rate to SA exchange rate OR based on what people get paid for similar jobs in SA?

The system works that you take your actual foreign income and convert to this ZAR. There are different rules on how you convert monies, but one way is to use the SARS published currency conversion tables. From this amount the R1m is deducted, to derive at the amount on which tax must be computed.

I live in New Zealand. My salary is $75k per annum (that does not include the employer’s 3% contribution to my retirement savings plan and the fact that I am on the company’s group life insurance policy).
Someone in the US doing a similar job will earn anywhere between $54K – $122K.
A similar role in SA would be paid approx R428k per annum.
Approx exchange values as of today:
USD54K = R775K
NZ$75K = R744K

The fact that South African law does not cater for tax relief on these employer contributions, nor give tax relief for employee contributions – which is allowed in a foreign jurisdiction is a problem. SARS / SARB is well aware hereof but indicated that at the moment they are not considering making adjustments to this harsh treatment.

Will this Million Rand be adjusted annually to allow for annual salary increases?

They should, but I would not bet on this!

What other benefits that we receive from our employers will be included in this limit i.e. superannuation, government pensions schemes, life insurance, etc

The only item specifically excluded is employer social security contributions. Otherwise, all fringe benefits are taxable and this is really not fair, but we cannot lobby National Treasury more than what we have done already on this point.

There is no landline number on the SARS website. So I cannot call them from NZ to get a new password for my E-filing. I have been trying to get that resolved via 2 different tax firms in SA. They also won’t let me submit manual returns via these tax firms. So my question is: are they going to make their systems more user-friendly for us expats so that we can willingly pay these extra taxes so that we can be compliant? 

This is strange as a competent tax firm can do this remotely easy-peasy.

Do I have to submit a tax return even though I earn less than R1m?

Where you are tax resident – YES!
Where you are not ordinarily resident and have no RSA income – NO!

Does this new law pertain to all expats in all countries worldwide or only countries with whom SA does not have a double tax agreement?

All South African tax residents, regardless of a Double Tax Treaty country. The answer is the same as the previous one, regardless of whether you are in a Double Tax Treaty country or not.

11. From Anon: I have dual citizenship, and work in the UK for long periods. My net earnings are about £24000 per annum. Have a SA bank account. How would the new Expat tax affect me? Would also like information on Financial Emigration as I have annuities in SA. What happens to my SA bank account? With Standard Bank. Thanks.

The financial emigration process will allow you to withdraw the retirement annuities. I am however unsure whether you will qualify for financial emigration, i.e. do you stay in the UK permanently?

12. From Tia S – This is a question re expat taxes on behalf of a  group of Saffas living in Canada where some of us have dual citizenship, some only Canadian and some SA but tax residents of Canada. Canada has an agreement re taxes with SA. How will we be affected, or will it be status quo?

This is the normal Double Tax Agreement and the only SARS Binding Ruling ever obtained on tax residency concerned this agreement with Canada. So the agreement is strong and offers good protection.

Our taxes and tax brackets in Canada are similar to SA, but one of the concerns is that we get great tax rebates here, does SARS have any claim to that? 

Absolutely valid and correct concern. SARS does not give the same tax breaks, so the effective taxes in South Africa tends to be higher – it is better to do financial emigration or claim Double Tax Agreement relief and get around the expatriate tax.

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Do we have to submit proof of tax residency to SARS or only if they ask?

SARS will assume you are resident until you tell them otherwise. The onus of proof is on the taxpayer to show that they are non-resident.

Is it advised to do financial emigration, or is it not really necessary? Some say it’s safer to do that, but it’s a huge and long process.

We recommend this is always done where you legally qualify for this. This is a legal requirement and formally notes your SARS and SARB status on record as ‘non-resident’. Agreed it is a long process with costs, but it is the most secure path to formally changing status.

If you earn some income eg. dividends/interest or retirement annuities in SA, or even if you earn nothing in SA, do you still have to submit a return to SARS every year?

The general answer is where you are non-resident and earn dividends, interest or retirement annuities in RSA, you must file tax returns and pay taxes thereon. Please note this can be overridden by Double Tax Agreement treatments.

Where you are tax resident, you need to submit a return every year, even where you have non-South African taxable income.

Is it true that SARS can lay claim to your money in a SA bank if they believe you owe them taxes?

Correct. They can take from a bank account and can ask a foreign country’s SARS equivalent to help with the collection of foreign taxes.

If you have any ‘expat tax’ questions pertinent to your situation, write to us – anonymously if you prefer –  at admin@sapeople.com, or write directly to claudia@financialemigration.co.za.

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1 COMMENT

  1. This is an excellent article. I wish to share the questions and email I sent in. Why I have no doubt Claudia will reply in due course, maybe readers who already have the answers to them can send their comments.

    Dear Claudia,

    I refer to the article and questions/answers about the SA Expat Tax posted yesterday: https://www.sapeople.com/2019/05/21/south-african-expat-tax-your-questions-answered-by-the-experts/

    I appreciate this initiative as clearly the matter warrants an open and extensive discussion to understand exactly what are Sars’ intentions and what are the legal rights of SA citizens. I also appreciate the private firm volunteering to clarify the new rules even though this firm is meant to profit from such assistance.

    Unfortunately myself and some of my SA expat friends feel that there are several grey areas still left unanswered and personally I am not sure if the fear and confusion has abated.

    Following your firm’s invitation to send any questions, here are the questions that we feel need answering:

    1) The international understanding of determining where a person is tax resident is primarily by (a) the number of days in a year that he/she reside – basically whether it is under or over six months – and secondly by (b) the social and economic ties that person has with country. Correct?

    2) It appears that SARS does not want to follow these basic guidelines described above when determining whether a SA citizen is liable to pay tax or not, and by using this new “Expat Tax” it wishes to reap whatever tax it can from citizens who are not living in SA but who intend to return to SA (and who probably will want to bring back their savings into the country one day in the future) In effect, it appears that SARS wants to treat every SA expat as still “domiciled” in SA unless they declare themselves to be not. Correct? (For the purpose of explaining what Domiciled means to others reading this, your domiciled country is regarded as your permanent home to which you intend to return to and/or retire and/or keep roots in for future return)

    3) We can all speculate on the reasons for this Expat Tax but its important to understand the “spirit” within which this new tax was created as it can help people understand the predominant grey areas better. The most common sense conclusion for this new Expat Tax seems to be – and I am not trying to be facetious here – (a) SARS needs to find creative ways of filling up the country’s coffers which have been extensively drained by the past “lost” nine years and (b) The SA government wants to reduce the number of expats ‘temporarily’ fleeing the country for better salaries by telling them that they will still have to pay taxes in SA unless the country they work in has higher rates. By saying this and by introducing the financial emigration paperwork and costs they hope to discourage people from leaving the country at a moment when the brain-drain and economy is in dire straits. Would you say this is correct or are there other or more logical conclusions to this new Expat Tax?

    4) SA citizens who live permanently in Dubai do not pay any taxes in Dubai because the UAE has a zero tax rate. But these citizens pay an arm and a leg for certain basic services like accommodation and most social activities. It could be said that in essence SA expats in Dubai pay ‘taxes’ in Dubai indirectly through the higher costs of living. However SARS seems to disregard this matter and SARS is basically telling all SA expats in Dubai that they must pay tax for all their income over R1m and they cannot deduct any obvious expenses that are greater than living costs in SA despite these being incurred for the sole reason of generating this income. Correct?

    5) In the case explained in 4) above where an SA citizen lives permanently in another country, in a normal scenario where SA was another country in Europe and/or the Commonwealth, this expat would be obliged to pay tax in his/her country of birth only on income sourced from that birth country (such as rent, interest, capital gains) and then apply that tax paid against the tax he/she must pay in the tax country of residence (where he/she is ordinarily resident), using the double taxation agreement. So in a simple example, if a UK citizen moves to Australia and earned a $100,000 salary in Australia whilst renting his/her house in the UK, the expat would pay tax in the UK for the rental income and then declare this income in his/her Australian tax fiing alongside the $100,000 salary and also declare the tax paid in the UK for the rent which would then be deducted from the overall tax due in Australia. You may not be able to confirm this since you probably specialize in SA tax law only but to the essence of my question is, is it correct that SARS wishes to be the odd one out (or the “ugly duckling”) from all Commonwealth countries, and most other countries for that matter, by warning SA expats that unless they endure considerable paperwork and costs to “financially emigrate” they must continue paying taxes in SA in conjunction with their new tax resident country, and if they do not they will face the risk of an international capturing of one’s funds in the foreign country (presumably only with a court order) and if the expat wants to return to SA one day for living/working he/she will face repercussions when earning an income in SA as the SA bank account will be easier to freeze by SARS should the tax authority feel that tax was due during the years living and worked abroad. Correct?

    6) What happens if an SA citizen financially emigrates and decides to return to SA three years or so later? An SA citizen has the right to work in his/her birth place at any time as long as he registers with the necessary authorities and this should never be denied. Also the returning citizen will be able to bring his/her savings into SA or will there be remittance fees?

    7) If an SA citizen emigrates without filing the financial immigration paperwork and paying any fee, and upon retirement returns to his/her birth country and brings in savings accumulated from years worked and lived abroad, will there be a remittance fee applicable to Sars? Any other repercussions?

    8) If an SA expat lives and works abroad and owns no assets in SA, but his wife still lives in SA and she owns a property in SA (but both married “out of community”), can the SA expat still financially immigrate?

    9) Question (12) in your article is answered by saying that it is advised he/she financially emigrates “where you legally qualify for this”. How would you describe in the most simplest of terms how does one “legally qualify” for financial emigration?

    10) Question (12) in your article is answered noting that the financial emigration is a long and costly process. Can you elaborate on this?

    11) Does Sars have a helpline via email which it responds to in a timely manner on questions related to this new Expat Tax?

    Thank you for your time answering these questions. I suggest SA people publishes the answers for the benefit of everyone to understand the realities. I have copied SARS customer care email in case they wish to reply themselves. However in my experience, when they eventually answer, they tend to divert any remotely complex question to a phone number which I am unable to reach from abroad.

    IN CONCLUSION

    Apart from helping my friends, the above will be of great help for me and my spouse. We currently are both ordinarily resident outside South Africa. In a normal world, and because we have some hope in Cyril Ramaphosas’s ability to clean the ANC and government, we would love the opportunity to return to SA in a few years time once we see proof of this and once we decide the risk of crime, especially violence in our neighbourhood, is lowered, even if we can afford the best security. We do not want to be living with too many barbed wire fences and guards. If car stops on the highway near a township we do not want our lives at risk.

    We are faced with the option of moving to lovely green Portugal where the crime rate is very low and racism is negligible, where we have water and electricity without any stoppages, and where we would be granted a tax amnesty for ten years for all foreign-sourced income.

    The other option is to go back to SA and enjoy the SA lifestyle which we miss so much, the friendly people and the braais. In this case we would be expanding our European company into SA and investing several million Rand in South Africa for this reason, employing a minimum of 10 full-timers and some 150 part-timers. However considering the apparent tactics of the SA government and SARS to recover lost monies from the Zuma years, to tax expats who (many very painfully like us) had to leave their home country in order to find a decent job and/to raise their children in a safe environment, as an investor I am not sure whether I want to take the risk of coming back to face harsh surprises with current and future laws for expats and furthermore not when the country is still classified correctly as one of the most violent nations on earth. It sounds incredulous that SA wants to tax us for years we do not spend in the country, for our pain of being compelled to leave our beloved country, friends and families, and especially when we make no use whatsoever of SA services (health, water, electricity, safety/security, job opportunities, infrastructure etc), which ironically our friends who actually live in SA struggle to receive themselves.

    All the lovely people of SA, our dear friends of all skin colours, all the lovely picturesque landscapes of the country and its wild animals cannot compensate for the danger from other humans when living in SA and for the lack of basic services. But if we see the country moving in the right direction and if we are not being taxed unfairly whilst living abroad, we will probably return in a heartbeat.

    Thank you

    Best regards

    Robert

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