The South African Revenue Service (SARS) has had its sights set on South Africans earning abroad since it brought worldwide income back into the tax net with the Taxation Laws Amendment Act of 2020. South Africans earning a foreign pay cheque are no longer afforded full exemption on their income, and where they meet the requirements for tax residency, they will be expected to declare their income back home and pay tax on it. Additionally, in the 2022 Budget Speech it was made clear that SARS would be going after non-compliant South Africans overseas.
Cease Tax Residency South Africa
Here’s what you need to know about why you should cease your South African tax residency if you have permanently relocated abroad
- If you are working overseas and you have not ceased your tax residency, and you have not filed any tax returns or declared your foreign income, you’re probably not compliant with SARS.
- Non-compliance with the tax authority will land you in hot water – If SARS has started the prosecution process for non-compliance, it will be too late for you to remedy your situation.
Do South Africans have to pay tax on foreign income in South Africa?
South Africa has a residence-based tax system. This means that South Africans will be expected to pay income tax on their earnings regardless of where they are located, if they meet the requirements for tax residency. Previously, South Africans could claim full exemption on their foreign income, but this is no longer the case.
SARS is now only willing to overlook the first R1.25 million earned by tax residents abroad. Income that exceeds this amount will be subject to tax back home.
Who is considered a tax resident in South Africa?
You are considered a tax resident if you meet the requirements of either the ordinarily resident or physical presence tests. However, it is important to note that not simply meeting the requirements of the tax residency tests is insufficient on its own to shield you from SARS. You have to make it official. This is because until you inform SARS that you no longer meet the requirements for tax residency, they are within their rights to assume that you are still a tax resident and tax you accordingly. In other words, until you tell them they can’t, they’re going to want to tax you.
How do you become tax compliant if you are abroad?
The most straightforward way to achieve tax compliance with SARS is to cease your tax residency through SARS’ official channels . Once you have ceased your tax residency, you will be seen as a non-resident for tax purposes and will only need to declare income with a South African source in the future. By ceasing your tax residency, you will automatically be compliant because SARS requires full compliance before they’ll acknowledge your change in tax residence status. If ceasing tax residency is not an option for you, the only other way to ensure you are compliant is to use the foreign income exemption, provided you meet the requirements. If you do not meet those requirements, and no Double Tax Agreement can be applied to give you relief, you will be expected to pay tax on your entire foreign income, which is why ceasing your tax residency is critical.
Who has to pay tax in South Africa?
To be clear, you will need to pay tax in South Africa if you –
- Consider South Africa to be your real home or you plan to return at some point in the future to reside permanently (regardless of whether you currently live abroad).
- Spent time within South Africa for more than 91 days in the relevant tax year, as well as more than 91 days in each of the last five tax years (as well as more than 915 days in total within that period).
- Own a home in South Africa, non-residents included in respect of capital gains tax on property.
- Earn income from a South African source (including rental income).
- Earn over R1.25 million in foreign employment income as a South African tax resident (or do not meet the requirements for foreign income exemption).
The only way to avoid paying tax on your foreign income in South Africa is to cease tax residency or invoke the power of a Double Tax Agreement.
FinGlobal: financial solutions for South African expats
For South Africans living abroad, tax compliance is now critical. Once SARS has begun the prosecution process it’s too late to go back and fix things, so it’s best to be proactive about your compliance. If you need some assistance with handling tax clearance, tax refunds or need help on how to become a non tax resident of south africa, FinGlobal is ready to take care of it for you.
To start your 100% confidential, no-obligation, zero-charge SARS assessment, simply leave us your details and we’ll be in touch to discuss your tax compliance status.