As March 2020 approaches, when SA ‘Expat Tax’ is due to be implemented, we’ve been inundated with questions from South Africans working abroad. Here are some of the latest questions from SAPeople followers around the world, with answers kindly provided by the expert tax team at Tax Consulting South Africa.
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.
Below you will find a selection of the latest questions submitted with answers by Nicolas Botha from Tax Consulting SA.
There are two generic items which are critical for good order and to avoid repetition – see Preamble here:
- Legal Privilege, Confidentiality and Liability
- Tax and Exchange Control Law
- 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 Claudia Apicella, Head of Expatriate Tax Compliance at firstname.lastname@example.org.
Frequently Asked Questions (FAQ) about South Africa’s ‘Expat Tax’
1. From Glen H: I emigrated to the UK in 2011, and have over the years closed bank accounts etc. I have no assets, or bank accounts or RA's in my name. I live permanently in the UK, and only travel back to SA for holiday. When I left SA, I made sure all was up to date, and I didn't owe SARS anything, but was told I only needed to fill out a tax form if I needed a Visa for the UK, which I don't, as I'm a dual citizen. Will I be liable to the expat tax?
- In order to mitigate the risk around your tax residency in SA it is still advisable to formalise your residency with SARS and SARB. This is best done through the financial emigration process.
- As you have no remaining assets it will then be advisable to deregister your tax number in SA, once this is complete you will no longer have an obligation to file any tax returns and your tax affairs in SA will be closed.
2. From Madelein: I was just wondering if we will be considered residents of SA for tax purposes? My husband got a permanent job in the USA. We are in the process of selling our house, I will stop working and move to the States. Not sure of our life policies, but my RA I will stop (put on hold) but not cash out earlier? Do we need to close all our bank accounts?
- It is likely that you are considered a tax resident in SA if you have been living and working in SA, please refer to our introduction page for the two residency tests for further guidance hereon.
- If you are considered tax resident and are moving permanently to the USA, it will be best to formally cease tax residency in SA to ensure your income abroad is protected and no longer subject to tax in SA. This is best done through the financial emigration process as it encompasses all aspects of the formalisation.
- Once this process has been completed you will still be able to retain your policies, annuities and bank account within SA – there is no obligation to close your accounts or encash/cancel these policies.
3. From Alexa: I left South Africa for university in 2003 and now live in the USA. I haven’t lived in South Africa since 2003, never had a job there, and never claimed any benefits. I have no bank or savings accounts there and don’t send money or anything to family there. I’m a USA resident and have dual citizenship. I’ve kept my SA passport current (immigration line is shorter when I visit every 2-3 years). Do I have anything to be worried about or should I start proceedings to renounce my SA citizenship? Any advice would be welcomed!
- Kindly note that your citizenship does not determine your tax residency, South Africa’s tax residency is outlined by our two tax residency tests, as outlined in our introduction page. Thus, there is no need or benefit to renouncing SA citizenship.
- Based on the above outlined situation there appears no claim to be a South African tax resident, due to the period spent outside SA and having no remaining assets in SA.
- However, as you lived in SA for a period that would qualify you as tax resident it will still be safest and mitigate the most risk around your residency to formally cease tax residency in SA to ensure you are fully covered. This is best done through the financial emigration process.
4. From Collette: Since 1979 I have received a pension from my late husband’s place of work. At the time, he was a British citizen and I was a South African citizen. Shortly after he died, I renounced my South African citizenship and took British citizenship. I left South Africa 26 years ago and only returned for a couple of weeks every 2/3 years to visit my parents who are now both deceased. When I left South Africa 26 years ago I had to open a non-resident banking account to enable me to receive my pension abroad. It is the only bank account I have and it is used solely for that purpose. I have no other assets in South Africa. I live in France, with my husband, who works and is a registered tax payer in France. I have never worked here. Do I need to register as a tax payer in South Africa even though I haven’t worked there in 26 years. My only connection is the pension I receive. PAYE is taken off my pension each month. I appreciate your advice and look forward to hearing from you and thank you in advance.
- Based on the above you will not meet SA’s tax residency test and therefore will not be seen as tax resident of SA.
- In addition to this you already have a non-resident account, which shows the South African Reserve Bank has noted you as non-resident for exchange control purposes. Therefore, correlating with your non-tax residence claim.
- However, as you are still receiving South African sourced income, from the pension fund, it will be advisable to register for tax and declare this income accordingly to ensure the utmost compliance.
- As per the Income Tax Act (ITA) of South Africa, all fringe benefits are taxable.
- Thus, when calculating your liability in SA any benefits, such as housing allowances; medical aid contributions; travel allowances etc. to which your employer contributed, will be included in determining your tax liability.
6. From Mickey: Hello. Please can you advise? I am a dual national, I returned to the UK after 5 years in SA in 2015. I own a house in SA (rental received ins declared to SARS every year). I have an RA in SA (declared to SARS as part of annual tax return). I earn just under R1Mil in the UK ( I send a payslip to my tax consultant in SA every year who submits it to SARS). I do not intend to financially emigrate as I do not intend to retire in the UK. Will I need to pay expat tax? Thanks for the advice. Forgot to say, I only earn money in the UK and just visit SA once a year or so for holiday.
- In order to determine whether you are liable to pay tax in SA on foreign earnings in the UK, you will need to determine if you are tax resident of SA. This is outlined by our two tax residency tests. Kindly refer to our introduction page for more information hereon.
- Should it be determined that you are tax resident of SA, which will likely be the case as you intend to return to SA, you will be required to declare all foreign earnings within SA and pay any associated taxes thereon.
- SA does, however, provide tax relief on your foreign employment income through section 10(1)(o)(ii) of the ITA. Thus, if you meet the requirements of the exemption, the income earned will be fully exempt.
- Unfortunately, the section 10(1)(o)(ii) exemption has been amended, which comes into play from March 2020, to only exempt the first R1 million thus income earned in surplus of this million will be taxable in SA.
7. From JD: I am married and retired. Duel citizen and spend 3 months in SA each year. I have property and bank account in SA. My wife is an American citizen. My personal income outside South Africa is less than R1000000 but when combined with my wife it is over the million. Is the tax just going to be calculated on only my own personal income? How would that work exactly?
- Should you still be considered tax resident of SA you will need to declare this income in SA and use the section 10(1)(o)(ii) exemption to reduce your tax liability.
- This is taxed on an individual bases and therefore will not look into your combined income with your spouse but rather only yours. Thus, come March 2020, only the employment income earned in surplus of R1 million will be taxable.
- Please note that your will need to meet the exemption requirements to claim this and this exemption only applies to employment income abroad – not other forms of income such as those earned from investments abroad.