As a South African who has recently emigrated and is now working and living abroad, it may take you some time to wrap your head around the intricacies of your new tax situation. This is because the physical act of relocation does not terminate your tax obligation to the South African Revenue Service (SARS) and you might find yourself meeting the requirements for tax residency in two different jurisdictions. What does this mean? It means that you could find yourself liable to pay tax on your income both in South Africa and your new country of residence. With this in mind, let’s unpack the concept of tax residency and double taxation in South Africa and the implications of both for your money.
What is tax residence in South Africa?
Tax residence in South Africa is the basis on which you are taxed by SARS on your income. As a tax resident, you will be taxed on income earned locally and abroad. This is because SARS is authorised to tax residents on all income, regardless of where it was earned or where the individual physically resides. A non-resident for tax purposes can only be taxed on income sourced in South Africa.
Will I be taxed twice on my income earned abroad?
South Africans living and earning an income abroad will be expected to pay tax on their income in South Africa. This might mean that the same amount is subject to double taxation – once in the country you’re now living in, and then again back in South Africa.
- How do I declare foreign income on my tax return?
- What happens when I do not declare foreign income if I have yet to cease SA tax residency?
How to avoid double taxation on foreign income
As mentioned, a non-resident can only be taxed on income earned in South Africa. This means that one of the ways in which you can avoid double taxation on your foreign income is to become a non-resident for tax purposes by completing tax emigration through SARS.
- Protect your foreign income from SARS with these two documents.
- A step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
Other methods of avoiding double taxation on foreign income in South Africa include:
- Using the foreign employment income exemption: South African tax residents who earn employment income from working outside of South Africa for a period exceeding 183 days may be eligible for an exemption of up to R1.25 million of that income. This exemption can help reduce or eliminate double taxation if the foreign country also taxes the income.
- Section 6quat credit: South African tax residents who earn income from foreign sources may claim a credit against their South African tax liability for any foreign taxes paid on that income. This credit is limited to the amount of South African tax payable on the foreign income.
- Double Taxation Agreements (DTAs): South Africa has DTAs with many countries to reduce or eliminate double taxation on income and minimise the unfair impact of other taxes. These agreements typically specify which country has the primary right to tax certain types of income, and they may also provide for tax credits or exemptions.
- What is the foreign income tax exemption in South Africa and how do you claim it?
- Double tax agreements explained for South African tax residents.
- Expat tax matters: Double Tax Agreements with South Africa.
Will I be taxed twice if I transfer funds abroad from South Africa?
The matter of tax is not applied to the act of transferring funds, but rather to the receipt of income. Generally speaking, money in a bank account would have already been taxed, depending on where the funds came from. If, for example, you are transferring funds abroad after you’ve cashed in your retirement annuity, this money would have been taxed by SARS before it was paid into your account. As such, if the funds were already taxed in SA at source, there is no need for a second tax event or double taxation. The only tax implication here would be that you would need to obtain Approval of International Transfer (AIT) clearance from SARS if the amount exceeds R1 million.
FinGlobal: cross-border tax specialists for South Africans
If you’ve recently emigrated and you’d like to minimise your risk of double taxation in South Africa, FinGlobal can assist with expat tax compliance, tax emigration, tax refunds and everything else you need to stay on the right side of SARS.
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