So, you’re a South African living abroad, right? Well, here’s the thing about taxes: even if you’re miles away on the other side of the planet, you’re still a South African tax resident until you officially say goodbye to the South African Revenue Service (SARS). What does that mean for your wallet? It means you must pay taxes on all your income, whether you earned it in South Africa or elsewhere.
It’s your responsibility to track your earnings and ensure you’re paying the right amount. The good news is: if you’re a South African working overseas, there might be some relief. You could qualify for the SARS foreign employment income exemption, which can help reduce your tax bill—Are you looking to cut your ties with SARS completely? There’s only one way- tax emigration. Let’s unpack what you need to know about the 183-day rule for taxes and tax residency.
Are you still a South African tax resident, even if you live overseas?
If you’ve moved away from South Africa, you might still be considered a tax resident. It means you’ll need to pay taxes on all your income, both South African and foreign. This tax obligation will remain in effect until you are no longer considered a resident for tax purposes.
When do you stop being a tax resident? To become a non-resident for tax purposes, you must no longer meet the requirements for tax residency, as defined by the revenue authority. As soon as you no longer meet the requirements of either the ordinarily resident or physically present tests, you become eligible to cease your tax residency with SARS. By completing the official process of tax emigration, you can change your status from resident to non-resident for tax purposes.
Read more:
- Emigration and changing your tax resident status after leaving South Africa.
- Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
What is the foreign income exemption in South Africa?
If you emigrated from South Africa recently, you must pay taxes on all your income. However, you might qualify for a tax break called the foreign income exemption, contained in s10(1)(o)(ii) of the Income Tax Act. It means you don’t have to pay South African taxes on the first R1.25 million you earn from your overseas job.
Who qualifies to use the s10(1)(o)(ii) exemption?
To be eligible, you need to:
- Be a South African tax resident (meet the residency requirements)
- Work for an employer outside of SA (foreign or local)
- Spend at least 183 days outside of SA in a year (the 183-day rule)
- Spend at least 60 days continuously outside of SA in a year
Read more: How does the foreign income exemption work for South Africans earning abroad?
How does the SARS foreign income exemption work?
If you meet all these conditions (including the 183 day rule), the income you earn from your foreign job up to R1.25 million can be declared tax-free in South Africa. Anything you earn over this amount will then be taxed at your average South African tax rate.
It is important to note, however, that the s10(1)(o)(ii) exemption does not apply automatically. You must declare all of your income and then seek to have the exemption applied to your tax liability.
If you’re a South African working overseas and want to claim the foreign income exemption, you need to understand the 183-day tax rule. This rule applies to:
- Employees only: People working for a company, whether it’s South African or foreign.
- All types of income: Salaries, bonuses, commissions, benefits, travel allowances, reimbursements, and employee share plan payments.
Who’s not affected by the foreign income exemption and the 183-day rule?
- Independent contractors: People who work for themselves.
- Freelancers: People who work on a project-by-project basis.
How does the 183-day rule work?
- All days count: Every day you spend outside South Africa, including weekends, holidays, and leave, counts towards the 183-day total.
- Any 12-month period: The 183 days can be in any 12 months, not just a calendar or tax year.
Read more: Living abroad? How the 183 days tax rule applies to you as a South African earning a foreign income.
What if you don’t spend 183 days in any country?
If you don’t spend 183 days in any particular country, you might be considered a “stateless person” for tax purposes. It can have significant implications for your tax obligations. Take a look at some potential scenarios:
- No fixed abode: If you don’t have a permanent home in any country, you might be considered a stateless person. It means you may need to pay taxes in the country where you earn your income.
- Tax treaty: If there’s a tax treaty between your country of residence and South Africa, this treaty might determine your tax obligations.
- Tiebreaker rules: Some countries have tiebreaker rules to determine tax residency when a person has ties to multiple countries. These rules can vary widely.
FinGlobal: tax specialists for South Africans abroad
Juggling tax compliance in multiple jurisdictions isn’t something you need to handle alone. FinGlobal can help you minimise the impact of double taxation on your foreign income as you work through tax emigration to cut your ties with SARS. We’ll be there every step of the way. From tax refunds to retirement annuity withdrawals, FinGlobal is ready to be your trusted financial solutions provider as you transition into your new life abroad.
To learn more about our full suite of convenient, reliable financial services for expats, leave your contact details below and we’ll be in touch!