Dreaming of a career on international yachts? As a South African yachtie, the world awaits. But before you set sail, it’s essential to understand your tax obligations back home. The South African Revenue Service (SARS) considers residents taxable on their global income, including income earned at sea. Let’s explore the basics of South African tax law for yachties so you can ensure a smooth journey with SARS.
Your tax residency, your anchor: seafarers tax rules
South Africa operates under a residence-based tax system, which means residency, not location, determines your tax liability. Here’s how SARS defines residency:
- Born and live in South Africa: This is a straightforward case of residency, because you meet the requirements of being physically present or ordinarily resident.
- Expats abroad temporarily: If you plan to return to South Africa, you’re still considered a resident even while working abroad.
Being physically absent from South Africa doesn’t automatically make you a non-resident. Long story short? If you see yourself returning home eventually, you’re likely a tax resident and liable to declare your global income to SARS. In fact, your tax obligation remains in place until you formally cease your tax residency with SARS through tax emigration.
The yachtie exemption lifeline – section 10(1)(o)(i)(aa)
Fortunately, South African tax law offers a lifeline for yachties when it comes to tax on their worldwide income – Section 10(1)(o)(i)(aa) of the Income Tax Act. This exemption applies to officers or crew members on any ship, international or South African, engaged in the international transportation of passengers or goods. There is no cap on the amount of income that can be claimed under this exemption, however, there are specific requirements for its use:
- Beyond the 12-nautical-mile mark: The exemption is only valid if the yacht operates outside South Africa’s territorial waters (beyond 12 nautical miles).
- The 183-day test: You must spend more than 183 days (or roughly six months) in a year outside South Africa.
It is important to understand that this exemption does not apply automatically, and you will need to prove to SARS that you qualify to use it before exemption will be granted.
Private yachts and the section 10(1)(o)(i)(aa) exemption
The good news is that this exemption applies to both commercially registered and private yachts, as long as they meet the international transportation criteria. Remember, two-thirds of yachts are private, so this clarification is important.
Understanding the tax year, provisional taxpayers and filing
The South African tax year runs from 1 March to 28 February. Tax return submissions typically open in July and close in October for non-provisional taxpayers. SARS announces the filing season each year.
Provisional taxpayers are individuals who earn income other than a salary from a South African employer, which includes yachties earning income abroad. If you are a provisional taxpayer, you’re required to submit estimated tax returns twice a year to SARS. These estimates cover your taxable income for the previous six months. In practice, you’re pre-paying your taxes in two instalments to avoid a large lump sum at year-end.
SARS determines provisional taxpayer status annually, and it’s not something you can choose. If you qualify as a provisional taxpayer, SARS will notify you. There is a clear explanation of provisional tax return filing requirements on the SARS website.
For example – understanding the rules in action
Let’s take a look at two scenarios to illustrate the application of the yachtie exemption:
Example 1: Muller – The exempt deckhand:
- Muller, a South African, signs a nine-month contract as a deckhand on a Bahamas-based yacht starting in April 2023 and ending in December 2023. He earns 5,000 Euros per month.
- Since Muller will be outside South Africa for more than 183 days, he qualifies for the Section 10(1)(o)(i)(aa) exemption.
- He can declare his entire income (45,000 Euros) and claim the full exemption, resulting in zero tax liability.
Example 2: Muller – falling short of the 183 days:
In another scenario, Muller gets a five-month contract in the Maldives from June to October 2023.
Here, he doesn’t meet the 183-day requirement. He must declare his income (15,000 Euros) and pay taxes according to the South African tax tables.
Section 10(1)(o)(ii): Understanding the alternative
While this article has focused on Section 10(1)(o)(i)(aa), some yachties might encounter discussions about Section 10(1)(o)(ii) of the Income Tax Act. Here’s a quick run-through of the key differences:
- Section 10(1)(o)(ii): This section offers an exemption of up to R1.25 million on salary, wages, commission, or remuneration for employment services.
- Applicability: Unlike Section 10(1)(o)(i)(aa), this exemption doesn’t apply to independent contractors. It’s relevant for crew members on ships involved in exploration, mining, or production of minerals and fishing.
- Key differences: Section 10(1)(o)(i)(aa) focuses on the number of days spent outside South Africa, while Section 10(1)(o)(ii) has a capped exemption amount.
- The pecking order: If you don’t qualify for Section 10(1)(o)(i)(aa) as a result of not meeting the day requirements, then Section 10(1)(o)(ii) can be explored.
Seafarers tax rules: bringing your earnings home
Yachting provides an incredible opportunity to save and invest. While this article highlights the fundamental aspects of tax for your information, it is essential to seek professional guidance.
Your safest bet would be to contact a tax professional as soon as possible, so you have sufficient time to gather necessary information and prepare your return before tax season ends. The average fee for claiming the Section 10(1)(o)(i)(aa) exemption typically ranges between R10,500 and R12,500.
FinGlobal: complimentary consultations for yachties
Understanding your tax obligations as a South African yachtie can feel overwhelming. It is important to stay compliant with SARS to avoid penalties and interest charges. That’s why we offer complimentary consultations to assess your specific situation and develop a personalised tax strategy.
By seeking professional guidance and planning effectively, you can ensure a smooth sailing experience both on the high seas and with the tax authorities. Don’t hesitate to reach out to our specialists through our website or book a consultation online.
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