Historically, many Saffas believed the appropriate action for declaring foreign income was simply to file a nil-tax return. The thought process was as they didn’t live on South African soil, they weren’t required to pay taxes to the South African government. Unfortunately, this approach is no longer possible due to new laws passed in March 2020, which state that only the first R1.25 million earned via foreign income is exempt from tax. As a result, expat tax is now a ‘very real’ prospect for South African tax residents earning their hard-earned bucks on foreign soil.
Consequently, most South Africans based abroad ponder the question, ‘How do I declare foreign income on my South African tax return?
So how do you declare your foreign dosh? What are the rules, and does foreign income tax exemption still exist? With so many questions buzzing around, it’s not surprising that many are confused about how to go about declaring foreign income!
Our blog aims to answer these questions and clear up your confusion once and for all!
What is foreign income?
Let’s start with the basics. Foreign income, according to the South African tax system, is income (foreign and local) received by South African residents regardless of where the funds are paid or where the income comes from. This residency-based system means South African tax residents based overseas are subject to the payment of tax in South Africa on their foreign earned income.
You are a South African resident if:
- You meet the criteria for the ordinary residence test
Even if you have lived abroad for years, as a South African citizen, you may still be considered a tax resident. Therefore taxation of your foreign income in South Africa is applicable. SARS will view your residency status based on where your assets, permanent family home, family members, etc., are located.
- You meet the physical presence test criteria
This is based on the number of days you have physically spent in South Africa. If you meet all the below criteria, you are seen as a South African tax resident.
- Spent 91 days in South Africa during the current tax year
- Spent 91 days + in South Africa during each of the 5 preceding tax years
- Spent 915 days in South Africa in total during the 5 preceding tax years
Expat tax exemption South Africa from March 2020
Before March 2020, all foreign income earned by South African tax residents was exempt from taxation in South Africa if:
- The tax resident spent 183 days plus outside South Africa’s borders in a period of twelve months.
- At least 60 of those days were consecutive.
So how has expat tax exemption South Africa changed?
From March 2020, the rules remain the same regarding time spent outside South Africa’s borders, but now only the first R1.25 million is exempt from tax. Anything over this threshold is taxable according to the tax tables for the assessment year.
How much foreign income is tax free in South Africa?
According to the new tax laws detailed above, the amount of foreign income that falls into the tax free bracket is only R1.25 million. While this may seem quite a chunky bit of cash, employment income is a broad term used by SARS to cover a multitude of earnings, such as bonuses, commissions, and gratuities.
This means that tax on foreign income a is not solely based on your basic salary! Instead, it relates to everything that equates to your worldwide earnings, even fringe benefits like housing, flight fares, and security. As you can see, this can add up very quickly, easily surpassing the R1.25 million mark!
How to declare your foreign income on your tax return
Once you have determined if you are a tax resident, the next step is to calculate your tax on foreign income and submit your tax return. Use our helpful steps below to make the process easier.
Complete the ITR12 form. SARS provides detailed guidance on how to do this.
- eFiling online
- At a SARS branch or by requesting the form by post.
- SARS mobiApp
Declare your foreign income on the ITR12 form in the foreign income section. Note the amount must be declared in South African Rand using SARS average exchange rates tables applicable for the relevant tax year.
Supply supporting documents. In most cases, these will be requested by SARS.
- IRP5 form (employee tax certificate) showing foreign income earned for the year.
- Copy of foreign employment contract
- Copies of passport showing the number of entries/exits for South Africa
- Spreadsheet showing days in/out of South Africa
Declaring your foreign income to SARS can be challenging, even in the most uncomplicated circumstances! Aside from figuring out if you are a tax resident, each person’s income and tax situation is unique, making deciphering the world of foreign income tax South Africa seem impossible. Thankfully, the FinGlobal team can easily provide the advice you need; no matter where in the wide world you reside, we are only a phone call or email away!
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