South African expat tax explained – maximising foreign income and minimising tax burdens

As a South African planning to chase international career opportunities, there are some essential things you need to know about earning an income abroad and paying taxes back in the Republic. As long as you remain a South African tax resident, you will be expected to submit a tax return to the South African Revenue Service (SARS) to declare and pay tax on your foreign income, which might mean being taxed twice on your earnings. Sound complicated? Let’s look at some of the most frequently asked questions about South African expat tax and how to minimise your tax burden so you have a better idea of what to expect.

Question 1: I’m a South African expat working abroad. How much of my foreign income do I need to pay tax on in South Africa?

FG answers: South Africa has a residence-based tax system, meaning that as a South African expat (who is technically still a South African tax resident), you will be taxed on all income, regardless of where you earn it. However, if you meet the requirements, you can qualify for a tax exemption for a portion of foreign employment income.

Here’s what you need to know about South African tax for expats:

• Exemption amount: The first R1.25 million of your foreign employment income is exempt from South African tax, provided you meet specific criteria. This includes spending over 183 days working outside South Africa a year.
• Tax on exceeding amount: Any foreign employment income exceeding R1.25 million will be taxed in South Africa at the standard tax rates.

Double Taxation Agreements: South Africa has Double Taxation Agreements (DTAs) with many countries, intended to help reduce or eliminate double taxation on your foreign income.

Read more:

• How do I declare foreign income on my tax return?
• How does the foreign income exemption work for South Africans earning abroad?

Question 2: If I permanently relocate from South Africa, do I still have to pay taxes there?

FG answers: Whether you must pay taxes in South Africa after permanently relocating depends on your tax residency status. Here’s what you need to know about tax in South Africa for expats:

Tax resident vs. non-resident: South Africa taxes residents on their worldwide income. If you permanently relocate and sever ties with South Africa, you may be able to become a non-resident for tax purposes. This means you would only be taxed on South African-sourced income, not your foreign income.

If you want to avoid paying tax on your foreign income in South Africa, you must become a tax non-resident.

• Cease to be a South African tax resident: To be considered a non-resident, you must demonstrate a clear break from South African tax residency. This can involve factors like:
  – Physical presence: Spending less than 183 days per year in South Africa (with at least 60 consecutive days) is a good indicator.
  – Financial ties: Minimising financial ties like bank accounts, property ownership (excluding some exceptions), and business interests in South Africa can strengthen your case.
  – Intention: Having a demonstrable intention to reside elsewhere permanently is vital.

Read more: Taxing matters: a guide to understanding South African tax residency for expats.

Make it official: To solidify your tax position, it’s important to formally apply for non-resident status with the South African Revenue Service (SARS). SARS can provide guidance and forms for this process.

Read more:

• Understanding tax emigration from South Africa: a comprehensive guide.
• 3 Things That Happen On The Date You Cease To Be A South African Tax Resident.
• Reducing taxes as a South African expat: what you need to know about cross-border tax planning.

Question 3: Can I avoid double taxation on my foreign income between South Africa and my new country of residence?

FG answers: There are ways to avoid double taxation on your foreign income between South Africa and your new country of residence until you become eligible to complete tax emigration.

Double Taxation Agreements (DTAs): As mentioned earlier, South Africa has DTAs with many countries. These agreements aim to eliminate or reduce double taxation on income earned in one country by residents of the other.

How DTAs work: The specific details of a DTA will vary depending on the countries involved. However, these agreements typically outline:

• Taxing rights: They may allocate taxing rights for different types of income (e.g., employment income, dividends, royalties) to one country or the other.
• Tax credits: Some DTAs allow you to claim a tax credit in your country of residence for taxes paid on foreign income in your previous country.

Read more: Double tax agreements explained for South African tax residents.

Question 3: How do I know if I still qualify as a tax resident in South Africa?

FG answers: Determining your tax residency status in South Africa can be a bit complex, as the South African Revenue Service uses a two-factored approach to define tax residency:

1. Ordinarily resident: This is a subjective concept and considers factors like:
   – Your centre of life: Where do you consider your permanent home or “usual or principal home”?
   – Family ties: Where do your spouse and children reside?
   – Social ties: Where are your social connections and memberships?
   – Business Interests: Do you have significant business activities in South Africa?
   – Intention: Do you intend to return to South Africa at some point?
2. Physical presence: South Africa also uses a physical presence test. You’re considered a resident if you spend:
   – More than 183 days in a tax year in South Africa (including previous five years) OR
   – More than 91 days in a tax year (including the previous five years) AND more than 915 days in the last 5 tax years.

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

Question 4: Do I still need to file a tax return in South Africa if I’m no longer a resident?

FG answers: Whether you need to file a tax return in South Africa if you’re no longer a resident depends on your specific situation. The general rule is that non-residents are not obligated to file tax returns in South Africa. However, there are exceptions:

• South African-sourced income: If you have any income that originates in South Africa, such as rental income from property you own there, investment income, or pension payments, you may need to file a return to declare and pay tax on that income.
• Double Taxation Agreements: If South Africa has a Double Taxation Agreement (DTA) with your new country of residence, the terms of that agreement might influence your filing requirement. In some cases, the DTA might specify which country has the primary taxing right for certain types of income, impacting your filing obligations.

Benefits of filing a tax return (even if you’re not obligated)

Even if you’re not strictly required to file, there could be some advantages to doing so:

• Claiming refunds: If South African tax was withheld on any income at the source (proceeds from the sale of a property), filing a return allows you to claim any applicable refunds.
• Maintaining tax history: Filing records your tax affairs with SARS (South African Revenue Service), which might be helpful if you return to South Africa or have future dealings with them.

Read more:

• Emigration essentials – top tips from the experts for filing your final South African tax return.

FinGlobal: cross-border financial specialists

Need a hand transitioning your finances from one country to another? FinGlobal can assist with everything from maintaining expat tax compliance in South Africa to completing tax emigration and encashing your retirement annuity as a non-resident.

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