Understanding your tax situation can be tricky after emigrating from South Africa to work and live abroad. Leaving the country doesn’t automatically end your obligations to the South African Revenue Service (SARS), which can make things complicated. You might be considered a tax resident in both South Africa and your new country, potentially leading to expat double taxation. Let’s explore tax residency and its implications for your finances, once you’ve relocated overseas.

What is tax residence in South Africa?

Tax residence in South Africa determines how the South African Revenue Service (SARS) taxes your income. As a resident, you’ll be taxed on your global income, even if earned abroad. This is because SARS has the authority to tax residents on all their income, regardless of its source or your physical location. Conversely, non-residents only pay taxes on income generated within South Africa.

Read more:

• How are residents and non-residents taxed in South Africa?
• Taxing matters: a guide to understanding South African tax residency for expats.

In South Africa, tax residence for individuals is determined by two main factors: ordinary residence and physical presence.

Ordinarily resident: This concept is not explicitly defined in legislation and is determined on a case-by-case basis. Courts generally consider it to be an individual’s usual or principal residence, the country they naturally return to, or their real home. Factors like family ties, permanent residency status in another country, and the purpose and duration of your stay abroad can be considered.

Physical presence: This is a more straightforward test. An individual is considered a South African resident for tax purposes if they are physically present in the country for:

• More than 91 days in the relevant tax year and each of the preceding five tax years, and
• More than 915 days in total over the preceding five tax years.

Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.

Will I be taxed twice if I transfer funds abroad from South Africa?

Transferring funds abroad from South Africa doesn’t directly trigger taxes. Taxes apply to the origin of the funds, not the transfer itself. Generally, the money in your account will have already been taxed, based on its source.

For example, if you’re transferring funds after cashing out a retirement annuity, SARS already taxed those funds before they reached your account. So, no additional tax is due in South Africa for the transfer itself.

However, if the transfer amount exceeds R1 million, you need an Approval of International Transfer (AIT) clearance from SARS. This clearance is a regulatory requirement, not a tax requirement.

Read more:

• Breaking down the tax implications of sending money overseas from South Africa.
• What to know before transferring policy proceeds and cash from South Africa.

Will I be taxed twice on my income earned abroad?

As mentioned, tax is charged on income, not the act of sending or receiving money. This means that you will be taxed on any funds that SARS classifies as income and that as a South African living and earning abroad, you will be expected to pay tax on that income in South Africa. This could mean that in practice, your income will be subject to double taxation – once in the country where it was earned, and second, in South Africa.

Read more: Hot question: my spouse works overseas, what are the implications for expat double taxation?

Is there a way to avoid double taxation on foreign income?

Certainly, one approach to avoid dual taxation on foreign income involves becoming a non-resident for tax purposes through SARS. This means that as a non-resident, you will only be taxed on income earned within South Africa.

Other strategies to mitigate double taxation on foreign income in South Africa include:

• Foreign employment income exemption: If South African tax residents earn employment income while working abroad for more than 183 days, they may qualify for an exemption of up to R1.25 million on that income. This exemption helps lessen or eliminate double taxation in South Africa if the foreign country also imposes taxes on the income.
• Section 6quat credit: South African tax residents deriving income from foreign sources can 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 double tax agreements with numerous countries to minimise or eradicate double taxation on income and mitigate the impact of other taxes. These agreements specify the primary taxing authority for specific income types and may include provisions for tax credits or exemptions.

FinGlobal: cross-border financial specialists for South Africans

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