If you thought you’d be able to leave the taxman behind in South Africa when you emigrated, you’re sadly mistaken. The South African Revenue Service still has an interest in South Africans around the world, with a particular focus on their worldwide earnings. South African expats living abroad are now expected to pay tax back home (where they still count as a South African tax resident) to the tune of up to 45% on foreign earnings that exceed the threshold of R1.25 million. What does this mean for South Africans who have emigrated to live and work abroad with no intention of returning? Let’s take a look at some important questions around tax status for expats.
Tax in South Africa
Do expats pay tax in South Africa?
When it comes to South African income tax law, there are three possible categories into which you will fall, which will determine how the South African Revenue Service will tax your earnings.
- Resident temporarily abroad
- Residents who live in South Africa are taxed on their income tax at their marginal rate.
- Residents living temporarily abroad are taxed on their worldwide earnings where they earn more than R1.25million per year.
- Non-residents who are taxed only on income that has a South African source.
If you are found to be a tax resident, you will be taxed on all your income (local and foreign).
Who is a tax resident of South Africa?
You might live in another country, but if you spend large amounts of time in South Africa, or you have assets and family located in the country, you might still technically be considered a tax resident. It is your responsibility to confirm whether or not the South African Revenue Service sees you as a tax resident or not, to ensure that you do not open yourself up to tax non-compliance by under-declaring your income and incurring unnecessary penalties and interest on top of tax outstanding.
How do I check if I classify as a tax resident or not in South Africa?
SARS applies a two-step inquiry to determine whether you’re a resident for tax purposes or not.
Step 1: The Ordinarily Resident Test
- You will qualify as ordinarily resident in South Africa if your primary home is in SA – the place to which you return at the end of your travels.
- You can still be regarded as being a tax resident in South Africa regardless of the amount of time you have spent outside the country.
What else does SARS look to determine your tax residency status?
- Your nationality and the status/type of the visa you hold for the country you’re in.
- Proof of permanent residence in the foreign country, where relevant.
- A certificate from the foreign revenue authority verifying your tax residency.
- Details regarding your South African properties and local business interests.
- Details of your social interests and family life, such as a gym contract, church, recreational clubs, etc.)
- Details of your family and the location of your personal belongings.
- How often you visit SA and for what purposes.
Step 2: The Physical presence test
If you fail to meet the requirements of the previous step in that you are not considered to be ordinarily resident in South Africa, you can still technically be considered a tax resident by means of the physical presence test, which is based purely on the amount of time you spend present in South Africa.
You will be regarded as tax resident if you are physically present in SA for:
- 91 days or more in the current year of assessment; and
- 91 days or more in each of the preceding five years of assessment; and
- 915 days or more in total during those five preceding years of assessment.
You need to meet all three of the above time requirements for the physical presence test to indicate that you are a tax resident.
- It is important to note that tax residency by physical presence can be broken by leaving South Africa for a stretch of 330 full days.
What are the consequences of ceasing tax residency?
- You are deemed to have made a disposal of all your worldwide assets for capital gains purposes, excluding immovable property in SA.
- You are no longer taxed in South Africa on his or her worldwide income, but only on South African sourced income.
Tricky question: I completed financial emigration a number of years ago, but I still have some assets left in South Africa, including a number of Retirement Annuity policies. What can I do? How do I check my tax status?
In order to completely sever your tax obligations with South Africa, it is necessary to ensure that you have completed tax emigration. This is the process of informing SARS that you have ceased to be a tax resident. As a non-resident you will still be able to access your retirement annuity funds and the other assets mentioned, provided you can prove that you have ceased tax residency more than three years ago.
FinGlobal: your global financial solution
FinGlobal can help you ascertain your tax status in South Africa, and ensure that you are up-to-date and compliant with your obligations to SARS. Leave us your details and we’ll be in touch to start your 100% confidential, free tax status assessment.