Tax matters for expats are getting increasingly complicated. This is because the South African Revenue Service (SARS) has taken a renewed interest in expats earning an income abroad since 1 March 2020. This means that expats abroad, with a pension or annuity income payable in South Africa, are expected to declare and pay tax on such income to SARS. Still, many expats find it challenging to deal with SARS when it comes to double taxation relief. Inefficiencies within the revenue authority are, as a result, causing delays and confusion for expats living abroad. Here’s what you need to know about the situation.
The context: double taxation for South African expats
Expats often rely on Double Tax Agreements (DTAs) to avoid twice paying tax on the same income. However, concern has been raised about a potential administrative hurdle within SARS that is causing delays in such applications for DTA relief.
Individuals considered tax residents in another country and non-residents in South Africa may be eligible for relief on their South African pensions and annuities. To address this issue, South Africa has double tax treaties with 22 countries, including the UK and New Zealand.
Claiming DTA relief from SARS – a potential maze
Claiming DTA relief can be a complex process. For expats who have been non-residents for over three years, they have now become eligible to make a lump withdrawal from their South African retirement funds, which has tax implications.
From an administrative perspective, there are limitations on withdrawal rates for those who have already accessed a lump sum and now receive an annuity. For instance, retirees who are already withdrawing pension income from their retirement savings cannot withdraw the entire amount at once after relocating overseas. Additionally, it is necessary to obtain a SARS directive specifying the tax amount withheld before any lump sum withdrawal can occur—this is how SARS handles tax on lump sum payments in South Africa.
Read more:
- Simplifying South African tax directives for expats: what they are and why they matter.
- What South African retirees abroad need to know about living annuities and double taxation agreements.
Double taxation concerns
To complicate matters, DTA relief cannot be sought during the directive application stage, potentially leading to tax being withheld even if it shouldn’t be. This could result in expats facing double taxation, even temporarily, if they were unaware of their DTA eligibility or if claiming the withheld tax back takes a long time.
Read more:
- Don’t leave money on the table – understand South Africa’s tax refund process for expats.
- Explained: Tax relief vs tax refunds in South Africa.
Nil tax directive – also a frustrating path
Another option for expats with annuitised retirement interests is the “Nil tax directive” from SARS. This means they must complete an RST01 form and obtain a signature and stamp from their new country’s revenue authority, which must then be submitted to SARS. However, many expats need a response from SARS when attempting to follow this route.
The delays caused by these inefficiencies disrupt financial planning for South African expats and erode trust in the tax system. While claiming DTA relief on annuities should be theoretically possible, obtaining a concrete outcome from SARS is often tricky. This lack of transparency and inconsistent application processes, coupled with the absence of clear timelines, leaves taxpayers in limbo, which is incredibly frustrating.
Read more: Double tax warning for emigrating South Africans – what you need to know.
FinGlobal: tax compliance specialists for South African expats
Managing your tax compliance and minimising the impact of double taxation on your finances as you transition to a new country shouldn’t have to be stressful. That’s where FinGlobal can step in and take over withdrawing your South African retirement annuity funds and managing your tax implications. We are affiliated with all the major insurance providers and have strong working relationships with SARS. We’ll help you jump through all the necessary administrative hoops to achieve the tax outcome you require, and we’ll guide paperwork and supporting documentation at every step of the way, working on your behalf to avoid unnecessary delay.
To find out how FinGlobal can simplify your double tax headaches with SARS, leave your contact details below, and we’ll contact you to discuss your situation.