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Who pays what? The key difference in income tax obligations between residents and non-residents

By April 3, 2023October 5th, 2023FinGlobal

Who pays what? The key difference in income tax obligations between residents and non-residents

April 3, 2023


Knowing what is expected of you from a tax obligation point of view is important when you emigrate from South Africa. This is because the act of relocating alone does not terminate your tax responsibility to the South African Revenue Service (SARS). As a South African tax resident, you will continue to be taxed on both your locally-sourced and worldwide income (above the R1.25 million exemption threshold) until you cease to be a tax resident.

What do you need to know about tax residency status and how to become a non tax resident of South Africa, and the difference it makes to your tax obligations? Let’s break it down for you, before you go.

What is the meaning of tax residency status in South Africa?

South Africa has a residence-based tax system. In such a system, there is one set of rules for taxation that applies to residents, and another set of rules that apply to non-residents. This means that residents and non-residents are treated differently for income tax purposes.

This might seem straightforward, but it gets a little complicated when we consider who counts as a tax resident in South Africa and who qualifies as a non-resident for tax purposes. Why is this so? It gets complicated because you can live outside of South Africa and still be considered a South African tax resident, which means that until you break tax residency, you’ll be expected to pay expat tax back home, among other things.

How does that work? Let’s look at how your tax residence is determined in South Africa.

Who is a tax resident in South Africa?

A tax resident in South Africa is an individual who meets any of the following criteria:

  • Someone who is physically present in the Republic for a minimum of 91 days in total during the tax year under consideration; or
  • Someone who is physically present in South Africa for a minimum of 91 days in total during each of the previous five tax years, and who was also physically present in South Africa for a minimum of 915 days in total during those five previous years; or
  • Someone who is deemed to be a resident according to the “ordinarily resident” test.

Conversely, a non-resident for tax purposes in South Africa is an individual who does not meet any of the above time-based physical presence criteria and who is not deemed to be a resident under the “ordinarily resident” test. However, you do not automatically qualify as a non-resident for tax purposes once you fail to meet the physically present or ordinarily resident tests. You must notify SARS that you have ceased to meet the requirements for tax residency, and follow the procedure to make an official declaration that you have ceased to be a tax resident.

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What is the difference between a resident and non-resident for income tax?

The income tax implications of being a resident or non-resident in South Africa are significant. Residents are subject to tax on their worldwide income, while non-residents are only taxed on income earned in South Africa. Additionally, residents are entitled to certain tax deductions and exemptions (such as the R1.25 million foreign income exemption) that may not be available to non-residents.

This is what makes it important to clarify your tax residence status with SARS as soon as possible, in order to properly comply with your tax obligations in South Africa.

Tax resident temporarily abroad: the in-between tax status

Until you break tax residency with South Africa and officially become a non-resident for tax purposes, you will be considered a tax resident temporarily abroad.

What tax does a tax resident pay in South Africa?

As a tax resident (even temporarily abroad) you will be expected to pay tax on income earned in South Africa and abroad. Therefore, this must be declared in a tax return submitted every year to SARS.

Read more: How do I declare foreign income on my tax return?

As a tax resident abroad, what tax relief do I qualify for in South Africa?

Section 10 of the Income Tax Act details how foreign employment income is eligible for exemption from income tax. The annual threshold for this exemption is R1.25 million, which includes the total value of your employment package benefits, such as accommodation and travel allowances.

  • The foreign income exemption does not apply automatically in your favour. You must file a tax return with SARS, declare all income and request that the exemption be applied to reduce your tax liability.
  • To use the exemption you must be able to show that you qualify for this tax relief, which is then deducted from your liability to SARS in the form of a tax credit.

You can use this exemption to exclude up to R1.25 million from your South African tax liability only if you meet all of the requirements –

  1. You are formally employed (i.e: no freelancers or contractors)
  2. You are a South African tax resident
  3. You earn a certain type of remuneration that is not excluded
  4. You spend a minimum of 183 days (+/- 26 weeks/6 months) in a consecutive 12-month period outside of South Africa providing services for your foreign employer, and ff these 183 days, at least 60 of them are consecutive.

What tax does a non-resident pay in South Africa?

Non-residents are taxed on the following:

  • Income with a South African source
  • Income paid out from a South African retirement annuity/pension
  • Rental income from a property located in South Africa
  • Capital Gains Tax on assets not considered for personal use

How do you become a non-resident for tax purposes in South Africa?

Once you have left South Africa, you can cut your tax obligation to SARS through the process of tax emigration. Once you do so, you terminate your responsibility to pay expat tax on your foreign employment income in South Africa.

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FinGlobal: tax specialists for South African expats (and future expats)

Confused about your tax residence status in South Africa? FinGlobal will ensure you’re always on the right side of your SARS obligation. Whether you’re a tax resident abroad wanting to maintain expat tax compliance in South Africa , or you want to complete tax emigration with SARS, we can help.

Got a complicated tax situation? We’d love to hear about it. Leave your contact details in the form below and put our service to the test.

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