Living and working abroad can be exciting, with many new opportunities opening up for digital nomads and skilled workers. Still, it also comes with responsibilities, including managing your tax obligations. This article unpacks briefly what South African expats need to know about expat tax in South Africa and how to navigate the expat tax exemption through the South African Revenue Service (SARS) while earning beyond the Republic’s borders.

Expat tax in South Africa: not out of sight, not out of tax

The first and (often most surprising) fact for South Africans living abroad is that you might still be liable to pay taxes in South Africa, even if you reside out of the country. This is because SARS operates on a worldwide basis of taxation, which means you are taxed on foreign and local income as long as you meet the requirements to be treated as a tax resident. This has become known as expat tax in South Africa.

So, if you thought you would skip the country and blissfully fall off the revenue authority’s radar, you’re in for a bit of a surprise. Read more about the cross-border sharing of information with SARS regarding expats and what to expect once you’ve left SA.

How do you know if you are a South African tax resident?

You are a tax resident of South Africa if you meet the requirements for tax residency, until you have ceased tax residency in South Africa. However, the onus is on you to inform SARS once your circumstances have changed and you no longer meet the requirements for tax residency.

Until they have officially verified your tax status as non-resident, SARS is authorised to treat you as a tax resident. If you do not discharge your obligations (file a tax return timeously, declare all relevant income, and pay tax accordingly), you can face criminal charges, administrative penalties, and some other unpleasant surprises.

SARS determines your tax residency based on two tests:

1. Ordinarily Resident: This is a broader test that considers factors like your family ties, permanent home in South Africa, business interests, and social links.
2. Physically Present: This test is more straightforward; it looks at the number of days you spend in South Africa in a 12-month period. Spending more than 183 days (with at least 60 consecutive days) makes you a resident for tax purposes.
   – Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
   – Taxing matters: a guide to understanding South African tax residency for expats.

If you meet either of these tests, you’re considered a South African tax resident, even if you’re physically living abroad. As a resident, you must file a tax return in South Africa and declare your worldwide income, including any income from South Africa.

Declaring your foreign income: it’s all above-board

So, how do you declare your foreign income on your South African tax return? SARS provides various tax return forms, but most expats will likely use the Individual Income Tax Return (ITR12). This form lets you disclose all your income sources, including your foreign salary, bonuses, allowances, and other foreign-earned income.

Read more: Double tax warning for emigrating South Africans – what you need to know.

The expat tax exemption in South Africa: a welcome relief

It’s not all doom and gloom, tax-wise. South Africa offers an expat tax exemption that can significantly reduce your tax burden. This exemption allows you to exclude up to R1.25 million of your foreign employment income from your taxable income in South Africa. This means you won’t pay any South African tax on that portion of your earnings.

Claiming the expat tax exemption: not automatic, but achievable

You’ll need to meet specific criteria to qualify for the expat tax exemption. It does not automatically apply to your income simply because it is foreign income. You must meet the requirements stipulated by SARS and then seek approval to utilise the expat tax exemption to have the amount excluded from your taxable income.

• The test of time: As mentioned earlier, you still need to be considered a resident for tax purposes based on the “physically present” test. This means spending more than 183 days outside South Africa, with at least 60 consecutive days.

Read more: Living abroad? How the 183 days tax rule applies to you as a South African earning a foreign income.

• Employment income: The income earned must be employment-related income that is not specifically excluded by the Income Tax Act. In other words, there must be a contractual employment relationship for those earnings to qualify for the foreign employment income exemption.

Read more: A comprehensive guide to the SARS foreign income tax exemption for South Africans working abroad.

Considering tax emigration: a permanent move, a tax status change

If you’ve permanently left South Africa and have no intention of returning, you might consider emigrating your finances once you’ve ceased tax emigration with SARS. This process formally severs your tax residency ties with South Africa. Here are some key aspects of tax emigration to be aware of:

• Capital Gains Tax (CGT) on exit: When you cease your tax residency through financial emigration, you might be liable for CGT on all your worldwide assets. This can include property, stocks, and other investments. However, there are exemptions and deferral options available, so seeking professional advice from a tax consultant in South Africa is essential.
• Implications of non-residency: Once you have ceased tax residency in South Africa and SARS has confirmed that you are no longer a resident, you’ll only be taxed on income you derive from South Africa. This can be be advantageous, but it also means you lose some tax benefits available to residents.

Read more:

• Understanding tax emigration from South Africa: a comprehensive guide.
• Top reasons South Africans living abroad consider tax emigration.

Financial emigration vs tax emigration: the South African reality

“Financial emigration” and “tax emigration” are often used interchangeably, but this is inaccurate. Financial emigration is the former process by which a South African resident ceased their residency for exchange control purposes by informing the South African Reserve Bank of their permanent relocation abroad.

In March 2021, the South African Reserve Bank (SARB) component of the financial emigration process was removed. It was rebranded as tax emigration and became the jurisdiction of the South African Revenue Service. Tax emigration now happens through SARS, and individuals inform the revenue authority of their permanent relocation abroad and request that their status be changed from resident to non-resident for tax purposes.

FinGlobal: helping South African expats all over the world

Managing your South African taxes while living abroad requires an understanding of your tax residency status, the expat tax exemption, and when to exercise your option for tax emigration from South Africa. Seeking advice from FinGlobal’s team of expert tax consultants in South Africa will provide personalised advice tailored to your specific circumstances. By taking a proactive approach and staying informed, you can ensure that you maintain expat tax compliance until you are ready to transition your finances to your new home country.

To find out how we can assist with South African tax returns, tax emigration, and more, leave us your contact details in the form below. We’ll be in touch to start your free, no-strings-attached, 100% confidential SARS assessment.