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 –
- 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.
- Tax and Exchange Control Law
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
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
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 firstname.lastname@example.org
Questions and Answers about South Africa’s ‘Expat Tax’
Please click on the plus sign to view answers:
1. From Carlene: I am a dual nationality citizen - Belgian/South African. I left South Africa shortly after my studies and in the little time I worked in South Africa I earned too little to be taxed. I also have no financial ties to SA, i.e. bank accounts, properties. I have paid taxes in Belgium from the moment I arrived and started working here. What steps do I have to take, if any, as I am taxed so much this side? I'm very worried about the new laws in SA. I would really appreciate some help regarding this matter.
- 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.
- 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.
3. From Brent: I’m currently residing in Saudi Arabia and have been living here for 7 years now. I’m living with my family in Saudi Arabia and only travel to SA every 2 years. I still have my properties in SA. Two paid off and one still under monthly payment. I’m renting my flat for minimal amount. Other two are accommodating family members. I’m earning about R1.3m a year. Am I required to pay the expat tax back home? I think I declared myself as non-resident but need to double check it. Is there anything else that’s needed to avoid this expat tax since I’m not residing in SA?
- 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.
4. From Anonymous: I have a question on the upcoming tax on expats which so far no one could give clarity on. This is for South-African residents who work on ships for up to 8 months at a time before returning home for approx. 6 weeks before returning to work again on ships - and this is through a ship line which is not in South Africa. Does the tax situation also affect them? They work for an international company paid in dollars. They have no investments in South Africa. They are tax registered from working in South Africa before but since they are not working in S.A and don’t have any investments of any kind in S.A they do not submit anything since there is nothing to submit. I will appreciate feedback to know if they also need to make some decisions on the process.
- 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.
5. From Anonymous: We are Australian citizens, been here for 10 years. I am a dual citizen; my wife renounced her SA passport. In the first few years in Australia I correctly declared my SA income from rent and interest and paid tax on that in Australia. I later didn't need to declare that as we didn't have any income, properties, bank interest, annuities, retirement funds or such in SA anymore. My pension and profit from the house we sold ages ago was transferred to Australia after getting clearance from SARS. Total Rands taken out of the country has been less than R2mill. We now just have our old joint bank account left in SA which is essentially dormant and just being kept open really. I may be inheriting around/less than R100 000 towards the end of the year when my mum's estate is finalised and is the only reason for really keeping the bank account open. (should I still?) After that, there is no prospect of any Rands coming my way. What do you think is the best to do now? Financially emigrate? Close the account? Approach SARS and SARB? Anything else?
- 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.
- 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.
7. From E: We have lived in Mauritius for 18 years, so residents in Mauritius, but we are still South African citizens... with the idea to return to SA permanently in 3 years’ time. My husband works for Air Mauritius and pays tax here. He has always been tax registered and paying tax in SA due to the 30 properties we are renting out there. How will this new tax law affect us? We do send money back to SA from time to time as we have no interest in overseas investments, nor financial migration.
- 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.
8. From M: We are moving to the USA due to my wife's work. We both have RA's in South Africa and property that we want to keep for the time being whilst we apply for permanent residency and upon obtaining that may look at selling the property. My wife and son will have some inheritance from her parents when they do pass on. We do intend to visit South Africa for a month every 2 years. How will this affect us as a family financially due to this new expat tax? We are aware of the double taxation treaty - will my wife still need to submit and/or pay taxes in South Africa? Also based on my understanding maximum tax in South Africa is 40% (I stand to be corrected) why as an expat living outside of South Africa is the tax 45%? Is this not discrimination?
- 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%.
9. From JT: I have a question or two with regards to the Expat Tax. I have been working in the UK for 17 months on a Tier 2 Visa. I am considering coming back to SA this year. I have a Bank account, credit card and a loan in SA and have been taxed and lived in the UK since 2017. What do I need to do if: I move back to SA and return to a normal SA job and pay tax there. Would my UK stay have affected anything in the last 17 months; Decide to stay and renew my Visa for an additional 3 years and live in the UK, what is my process to follow? Salary wise, I would exceed the R1mill threshold in 2020 and I border it now depending on the ROE used. I would appreciate any advice.
- 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.
10. From Anonymous: I saw the post on financial duties due in SA for expats and wanted to ask a question. Mine is a role reversal situation where I’m from the uk and my fiancée is South African and living in Joburg. So I have a limited company in the UK and don’t officially live here in SA as I work offshore in Europe in various locations, I make a lot of flights every year back and forth to Europe and officially each time I come is a holiday coming into SA. So I have to pay tax in England but when we get married next year can you advise what would be my best plan? I went to see an accountant upon arriving here 5 years ago and I asked him what he would suggest if I was to open up an account in SA and he basically told me I’d be due to pay around 50 per cent of my wages to SARS if I did that which is not happening. Would it be of no benefit to me and my partner for me to set anything up over here and what happens if we decide to buy a property as we’re currently renting a place at the moment?
- 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.
- 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.
12. From Danni: Apologies if this has been asked before but my question is...If I have no assets in SA, no retirement annuity or pensions, no bank accounts, no anything in SA, do I still need to financially immigrate? I left SA over 6 years ago and have obtained NZ citizenship and do not hold dual citizenship. How does this affect me?
- 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 email@example.com, or write directly to firstname.lastname@example.org or nicolas@financialemigration.