‘EXPAT TAX’: Expert Answers for South Africans Living and Working Abroad

Thanks to popular demand, here are more ‘Expat Tax’ questions submitted by SAPeople members, with answers kindly provided by the expert tax team at Tax Consulting South Africa.

Dear SAPeople Members,

Thank you for your questions on South African tax and exchange control. We will give each answer a specific response, answering the question posed. This will not only benefit the person who asked the question but hopefully, also serve as a reference to many South Africans abroad who may have similar facts. There are two generic items which are critical for good order and to avoid repetition

  1. Legal Privilege, Confidentiality and Liability

When we operate in our practice, our advice comes with legal privilege (as admitted attorneys, which are the only tax advisors given such privilege under the Tax Administration Act), confidentiality as per our professional association rules (we are bound by the rules of various professional bodies including law society, SAICA, SAIBA, SAIPA, FSB (now FSCA), SAIT, FPI, SARA and SAPA etc.), and we also accept liability for our professional guidance where explicitly required by clients and stated as such. As this is general guidance given on limited facts, we note that these rules do not apply to the responses we provide.

  1. Tax and Exchange Control Law

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There are some fundamental rules of tax and exchange control, which applies to all South African residents or persons otherwise with a South African source of income. No response is proper where these rules are not referenced. Hence, we noted below some of the most general items applicable to all questions, thus avoiding repetition and ensuring everyone has access to the same tax technical information –

  • Before one can decide on how to proceed, one needs to determine if they are a tax resident of South Africa by applying our two tax residency tests, being the Ordinarily Resident test and the Physical Presence test. You can also be non-resident somewhere else, but this is more complex process and will need specific guidance on a case-by-case basis.
  • If one is a tax resident of South Africa, then they will be liable for tax on their worldwide
    income and the amended expat exemption will apply. If one is a non-tax resident of South Africa, they will be taxable only on South African sourced income. Thus, it is imperative that these tests are applied correctly, and a determination is made.

Both of the above-mentioned tests are set out in the links below for your ease of reference:

2.1 Ordinarily resident test – click here

2.2 Physical presence test – click here

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We have also set out further information below, which will assist in understanding the pros and cons of the solutions you have in regard to tax residency and the amended expat exemption.

Expat tax compliance brochure: Click here

Article on Expat tax law: Changes to law for South Africans working abroad

Conclusion

We will refer to these sources in each response and please just let us know if you need more personalised attention. There is always someone willing to have a call with you to assist and there are no hidden cost implications. Also, we really enjoy unique situations and/or high net worth cases, where the answer and optimally compliant position are more complex.

For more information, please contact Roger Aires, Financial Emigration Tax Specialist at roger@financialemigration.co.za

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Questions and Answers about South Africa’s ‘Expat Tax’

Please click on the plus sign to view answers:

Dear Carlene, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • In order to mitigate the most risk it is advisable to formalise your status to non-tax resident with SARS and to a non-resident for exchange control purpose’s with SARB. This is best done through the financial emigration process as it encompasses all aspects of the formalisation, whilst taking into account the law behind tax residency.
  • Due to the fact that you worked in SA there is a likelihood that you were registered for tax. Therefore, it will be best to determine if this is the case and the current compliance standing of your tax profile.
  • It is then advisable to proceed with the formal emigration aspect of financial emigration which centres around SARB and exchange control regulations.
  • Should you have no assets remaining in SA, you will be able to deregister for tax and close off your tax affairs in SA. Thus, ensuring that all obligations are met and the necessary formalisations are in place to protect your foreign earnings from taxation in SA.
Dear Amanda, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • You are able to proceed with the financial emigration process without having acquired permanent residence. This is in accordance with both aspects involved in the financial emigration process – formal emigration (SARB) and tax law.
  • The formal emigration aspect of financial emigration needs to be completed in accordance with SARB rulings. SARB allows for permanent residence and renewable visa’s or work permits, excluding any tourist permits or visa’s, to be used for the purposes of completing the process.
  • The tax law aspect needs to be in accordance with the two residency tests as outlined in our introduction page.
  • If you are staying abroad on these permits or visa’s with the intention to remain permanently abroad, possibly as a stepping stone to acquire permanent residence in the respective country, financial emigration can be followed as you will likely not meet test. Therefore, allowing you to formalise your non-tax residency with SARS and SARB. 
Dear Brent, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • In order to ensure that you are not affected by expatriate tax law in South Africa it will be best to formalise your status to non-tax resident.
  • This is best done through the financial emigration process, as the process mitigates the most risk around ordinary residence – refer to our introduction page.
  • This is pertinent when one has remaining assets in SA, such as properties, as the assets can be used to argue that you are ordinarily resident and therefore tax resident. Therefore, the documentation acquired through the FE process will be used to negate any such argument and argue against your tax residency, by showing proof of formalisation thereon.
Dear Anonymous, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • Provided that these persons are South African tax residents, expatriate tax law will be applicable to them and they are therefore required to declare local and foreign earnings. Thus, they are required to submit returns declaring their income earned abroad the ship and are obligated to do so.
  • This income can, however, be exempt, provided that the exemption criteria is met, under section 10(1)(o)(ii) whereby the foreign employment income will be fully exempt from taxes in SA. This will be in place until March 2020, thereafter the exemption has been restricted to exempt only the first R1 million with the excess being subject to taxation in SA.
  • In certain circumstances one will be able to exempt the income earned abroad the vessel under section 10(1)(o)(i), also referred to as the seaman’s exemption, which has not been amended and will still fully exempt the income come March 2020.
  • Please note that section 10(1)(o)(ii) cannot be applied to all employee’s working aboard the vessel as this is only in place for employees who are part of the safe passage or navigation of the ship.
Dear Anonymous, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • Due to having a South African bank account and being a beneficiary of inheritance in SA it will be advisable to financially emigrate.
  • This is due to the fact that having a resident bank account conflicts your non-resident claim. Thus, the FE process will rectify this through completing the formal emigration aspect, thereby converting your account to a non-resident bank account and formalising you as a non-resident for exchange control purposes.
  • Kindly note that estate managers will often request formal proof and documentation of your non-residence, in order to have the funds due from the inheritance paid-out, which are acquired through the financial emigration process. Additionally, informing SARB of the inheritance, through FE, allows these funds to be transferred into the account and abroad as this would’ve have been noted and pre-approved with exchange control.
Dear Anonymous, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • As you are working on a rotation bases financial emigration will likely not be a suitable tax relief mechanism in your case. This is due to the fact that you will potentially, dependant on your exact circumstance, remain ordinarily resident and therefore tax resident of SA.
  • If the above is the case you will need to declare your foreign earnings in SA and claim the section 10(1)(o)(ii) exemption, provided that the criteria are met. Thus, you will be able to fully exempt the income for the relevant years until March 2020, thereafter only the first R1 million per year will be exempt and the surplus will be subject to further taxation in SA.
  • Further to the above, additional relief to this can potentially be claimed through tax credits on the taxes paid in Nigeria. This will need to be advised on and completed in accordance with the Double Taxation Agreement (DTA) between SA and Nigeria.
Dear E, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • As your intention is to return to SA you will remain ordinarily resident of SA and therefore be tax resident.
  • This means that both you and your spouse are obligated to file tax returns in SA to declare both local and foreign income. Your foreign employment income can be exempt under section 10(1)(o)(ii), provided that you meet the criteria, and will be fully exempt until March 2020.
  • After March 2020 only the first R1 million will be exempt, due to the amendment that comes into play, the surplus income will then be subject to taxation in SA. Thus, the amendment may bring about a tax liability for you and your spouse.
  • Unfortunately, as you intend to return and will remain ordinarily resident you will not be able to financially emigrate and will need to look into the Double Taxation Agreement (DTA) between SA and Mauritius for further tax relief.
  • The DTA will govern if you are able to claim, deemed, non-residency for the particular years spent abroad, thereby exempting your income accordingly from taxation in SA.
Dear M,
  • If you are tax residents of South Africa, then you will need to meet the exemption requirements in order for the first R1 million of your foreign employment income to be exempt from being taxable. If you meet the requirements, then you will be liable to pay tax on your foreign employment income on the amount exceeding R1 million.
  • If your wife has a successful dual taxation agreement application, then she will not be liable to pay tax on her foreign employment income in South Africa however she will be liable to declare her worldwide employment income under the DTA in South Africa.
  • Please take note that the maximum tax percentage in South Africa is 45% not 40%.
Dear JT,
  • If you are a South African tax resident, then you are liable to declare all of your worldwide income to SARS even while you worked in the UK.
  • If you move back to SA this year, your UK stay would not have affected anything in the last 17 months. However, your tax returns for this period would need to be filed declaring your worldwide income if you are a tax resident of South Africa.
  • If your intention is to permanently remain abroad then financial emigration or the application of a Double Taxation agreement is advisable. If your intention is to return to South Africa in the short term, then financial emigration will no longer be advisable.
  • The question depends on whether you are considered a tax resident of South Africa. If you are indeed considered to be a tax resident of South Africa, then the new expat tax law that will come March 2020 will affect you and therefore you will be liable to pay tax on your worldwide income in South Africa.
  • You are able to purchase property regardless if you are a South African tax resident or not. If you are a tax resident of SA then nothing will change in terms of tax formalities, however, if you are a non-tax resident, then you will need to obtain a tax number upon purchasing your property but this does not mean you will automatically become a tax resident. It simply means you will be liable to pay any tax relating to the property such as capital gains tax or rental income tax if applicable.
  • It will be best that we schedule a telephonic meeting in order to further discuss your situation.
Dear Robyn, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxationagreement as well as our two tax residency tests.
  • If you are still a tax resident of South Africa, then you are liable to declare all of your worldwide income to SARS on an annual basis regardless of your asset profile in SA or regardless of having dual citizenship.
  • However, from the limited information you have provided, it would seem that you are not atax resident of South Africa. It would be the prudent approach to formalise your non-tax residency status.
Dear Danni, Please see our initial introduction at the top of the page for information on financial emigration, the dual taxation agreement as well as our two tax residency tests.
  • Based on the limited facts provided, it would seem that you are not a tax resident of South Africa.
  • However, If you are still a tax resident of South Africa, then the new expat tax law will affect you regardless if you do or do not have any assets in South Africa and regardless of the fact that you have been residing outside of South Africa for the past 6 years.

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 roger@financialemigration.co.za or nicolas@financialemigration.co.za.

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