SA ‘EXPAT TAX’ Explained: More Answers for South Africans Working Abroad from the Experts – July 2019

By Claudia Aires and Jonty Leon

Thanks to popular demand, here are even 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,

The positive responsive from the community has been phenomenal. We encourage you to continue submitting your questions and look forward to those unique situations and/or high net worth cases, where the answer and optimally compliant position are more complex.

Here you will find a selection of the latest questions submitted and answers by Claudia Aires and Jonty Leon from Tax Consulting SA.

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There are two generic items which are critical for good order and to avoid repetition – see Preamble here:

  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
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

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 Claudia Apicella, Head of Expatriate Tax Compliance at claudia@taxconsulting.co.za.

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

Dear Lytjie, The question to ask is if your husband is still regarded as an ordinarily resident of SA based on the criteria of the ordinarily resident test in the income tax act. The main factors remain that your husbands most fixed and settled place of residence, habitual abode and place of personal interests seem to still be in SA. Therefore, he is still considered a tax resident of SA. He will most certainly be impacted by the amended expat tax law commencing March 2020 whereby the first R1 million of foreign income (to include fringe benefits) will be exempt if your husband is abroad for more than 183 days and 60 consecutive days, thereafter any foreign income in excess of R1 million will then be taxed in SA and in accordance to the tax tables . It will be very difficult for him to claim a Double Taxation Agreement as he does not meet the criteria’s of the Tie Breaker Test within the DTA between SA and US and he will most certainly not be able to financially emigrate as he does not meet the criteria’s of the “Ordinarily Resident test” nor does he have a permanent intent to remain abroad. If both you and your husband work and live abroad then tax relief mechanisms can be applied however if the situation remains as is, then your husband will most be impacted from a tax liability on his foreign income commencing March 2020
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Dear Nicolaas, Thanks for the comment. It would be important to understand your full duties as well as see your employment contract. As the DTA between SA and Hong Kong, specifically the article you refer to can successfully be used to claim exemption on your foreign earned income – IF you meet the requirements for such exemption. The issue is really, if you do not meet the requirements and you attempt to exempt that income, SARS will likely find out, due to an audit or verification where they require you to provide substantiating documents to prove your declaration. Thus, before claiming the exemption it is rather advised that an expert looks at your facts and determines whether it would be possible in the first place.
Dear Markus, Home affairs status and tax residency status in SA do not align nor do they work in symbiosis. The reality is that if you relinquish your SA citizenship you will most certainly still be noted as a tax resident in SA through SARS and SARB if you have not formally placed that non residency status on file. Many expats meet the criteria of the residency tests within the SA income tax act however these tests are subjective test. Objective factors thereafter need to be considered to ultimately confirm non residency. Your facts based on the above contradict non residency, due to you having resident bank accounts, phone contracts and paying for policies however it seems that your family’s intent is a permanent one to remain abroad and therefore I would advise that you formally place your non residency on file by either financially emigration or claiming treaty relief.
Dear Marc, Being a rotation worker is unfortunately exactly the type of taxpayer SARS will be catching with the new expat exemption. You will need to ensure you meet the requirements of the exemption so that you can at least exempt the first R1 million. This is the 183-60 day test. Over and above this, tax planning is essential to reduce your tax liability, as well as looking at the tax paid in your host country in order that we can use those taxes paid as a credit against your SA taxes.
Dear Dirk, Regardless of what foreign jurisdiction you reside in and whether you have resided in two foreign jurisdiction within a 12 month period (not per calendar year nor tax year), the fact remains that all foreign income in its entirety will be fully exempt from tax in SA if you meet the 183 -60 day rule. Currently all foreign income is exempt under the 183 - 60 however come March 2020 only the first R1 million of foreign income will be exempt under the 183 - 60 and thereafter the surplus of R1 million will be taxed in accordance to the tax tables relevant to that tax year in SA.

Dear Frans,

Thank you for your detailed note. It seems you have been given the run around by SARS, which is not unusual at all, unfortunately. I agree with your view of the DTA, that the pension should not be withholding tax as this tax would be payable abroad, and not in SA. My view is that an investigation into your tax number needs to be done, because it very well may still be active, and if it is not, then I suggest that it be reactivated and that a tax directive be applied for, for the past years as well as future years, so that the pension fund does not continue to withhold tax.

As your matter is not the usual, my suggestion is that we have a consultation to discuss this in detail, so that we can untangle all issues and work on a solution.

Dear Salim, If you have remained a tax resident of South Africa, then most certainly. As a tax resident one must submit a tax return declaring worldwide income. As a non-resident, one would only declare SA sourced income. In terms of a source code, it really depends on many factors, like the type of income earned, whether it is taxable or non-taxable etc. It would be good to speak to a tax consultant dealing with filing of expatriate tax returns, who will be able to determine where best to declare this income on your tax return and if any exemptions would apply.
Dear Theunis, Thanks for your enquiry. To take note is that it doesn’t matter where your salary is paid to, it matters where the work is being performed as well as whether you are a tax resident of SA or not. From the information provided, let’s assume you are a tax resident of SA. This means that you are taxable on your worldwide income, the full earnings must be declared on your SA tax return, not just the portion brought back into SA. Thus, if you meet the requirements of the exemption (from 1 March 2020), your foreign income can be exempt up to R1mil, after that the balance will be taxable in SA, whether you leave it abroad or not. In terms of a retirement annuity, this is always taxable in South Africa if it is sourced in SA and you are a tax resident of SA.
Dear Brian, Thanks for your enquiry. First thing to ask is if the annuity has matured yet or not. If the annuity has not yet matured, then you will need to financially emigrate in order to withdraw these funds and you will then be able to transfer them abroad. If the annuity has matured, and you can take out a lump sum, then you will be able to withdraw and transfer outside of SA.

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

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