The South African Revenue Service (SARS) has recently increased its penalty enforcement, targeting individuals who fail to submit their tax returns. While taxpayers who are compliant need not worry, non-filers are now under scrutiny and may be subject to penalties. SARS is currently issuing penalties for late submissions and has warned taxpayers and service providers in the latest Tax Practitioner Newsletter for January/February 2023 to take immediate action if they receive a notice. If you do receive a Personal Income Tax Administrative Penalty notification, it is because of your late or non-submission of one or more Income Tax Returns. Resolving this will require the submission of outstanding returns as soon as possible. Failure to do so will result in monthly recurring administrative penalties until the non-compliance is resolved.
With this in mind, let’s take a look at what South Africans working abroad need to know about submitting tax returns back home in order to avoid tax penalties in South Africa.
Tax for South Africans working abroad
According to the South African tax system, individuals who are considered residents (for tax purposes) are obligated to pay taxes on all local and foreign income received, regardless of the source or where it was paid. However, South Africa provides a credit where foreign taxes are paid on income earned from a non-South African source, where there is a Double Tax Agreement in play. Non-residents, on the other hand, are only taxed on income sourced from South Africa. The tax rates applicable to both residents and non-residents are the same.
South African tax residents working overseas
You are a tax resident working abroad if you have not yet ceased your tax residency with SARS and had your tax status officially changed from resident to non-resident.
According to the rules of tax residency, this means:
- You are obligated to submit a tax return in South Africa, even if you are paying tax on your income in the country where it is earned.
- As a tax resident earning a foreign income abroad, you might be eligible for tax relief in the form of the foreign income tax exemption, which enables you to request that up to R1.25 million of your foreign employment income be exempt from your South African tax liability.
- In order to utilise this exemption, you must file a tax return with SARS – it is not applied automatically.
- You will be expected to file a tax return in South Africa every tax year until you have ceased your tax residency and become a non-resident for tax purposes.
What does ceasing South African tax residency mean?
Ceasing your tax residency means clarifying with SARS that you no longer meet their requirements to be classified as a resident of the South African tax system. It means that you no longer meet either the ordinarily resident or physically present test for residency.
However, simply failing to meet the requirements of tax residency is insufficient to cease your tax residency. There is an official process that must be followed with SARS in order to ensure that they acknowledge your change in tax status from resident to non-resident, in order to terminate your obligation to pay expat tax on your worldwide income.
Note: you will still have to file a tax return in South Africa as a non-resident only if you still earn income in South Africa, from a rental property, for example.
When does the South African tax year run?
Tax season refers to the timeframe during which taxpayers are required to prepare and submit their tax returns to SARS. Typically, tax season for individuals in South Africa starts on July 1st and concludes in November of the same year. It’s worth noting that the tax year differs from a standard calendar year, which runs from January 1st to December 31st. The tax year is named after the year in which it ends. For instance, the 2024 tax year begins on March 1st, 2023, and ends on February 29th, 2024.
What are the penalties for late submission of tax returns in South Africa?
After the conclusion of the 2021 filing season, SARS issued a notice stating that late submission of returns would result in penalties being levied. This has resulted in a new general rule, where taxpayers who fail to submit their return will immediately incur a penalty based on the one outstanding or late return.
In the past, SARS would only apply penalties for late submission when there were two or more overdue tax returns. The penalty for failing to submit an income tax return as required under any tax Act was based on the number of outstanding returns. However, SARS has announced that penalties for late submission will be imposed if any single tax return from 2007 to 2020 is outstanding from December 1st, 2022. SARS clarified that this penalty will only apply to the 2021 tax return going forward, and not to previous returns.
What happens if you fail to submit a tax return in South Africa?
Under no circumstances should you assume that failing to file a tax return will go unnoticed by SARS. The revenue authority is collecting related information from various financial institutions to flag individuals who are non-compliant. While foreign income may qualify for the foreign income exemption, expat taxpayers must register as provisional taxpayers if their foreign income results in a tax liability of more than R30,000 after applying the foreign exemption and foreign tax credits.
Not including foreign income in provisional tax returns could result in understatement penalties of up to 200% of the shortfall during the annual return submission, leading to a significant liability for you as the taxpayer. Failure to submit a tax return entirely amounts to tax evasion.
What are the tax evasion penalties in South Africa?
Evading taxes can result in severe consequences, including criminal investigation and hefty penalties. Failure to register for tax and submit tax returns can lead to monthly penalties based on the amount of tax owed, along with interest on the outstanding amount. Individuals with numerous outstanding tax returns can apply for the voluntary disclosure programme (VDP) to sort out their tax affairs. The VDP provides relief from criminal prosecution and some administrative penalties for understating taxes. However, penalties for late tax return filings are likely to still apply.
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