Tax implications for South African expats – declaring your worldwide assets and foreign income

Moving abroad can be an exciting adventure, but it also comes with its fair share of complexities, especially regarding taxes. Understanding your tax obligations and ensuring compliance can be daunting as a South African expat.

To help you overcome the overwhelm, in this blog, we’ll break down the significant aspects of declaring foreign income, understanding your tax residency status, and working with double taxation agreements. We’ll also discuss the process of tax emigration and how to ensure a smooth transition.

Whether you’re a recent expat or considering a move abroad, this guide will provide you with tips and insights you need to manage your tax affairs effectively.

How to declare foreign income on your tax return to SARS

Declaring foreign income on your South African tax return depends on the type of income and whether it qualifies for any exemptions. Here’s a general guide to help you:

It all starts with determining your tax residency status:

• Resident: If you are a South African tax resident, you are generally taxed on all your worldwide income, including foreign income.
• Non-resident: If you are a non-resident, you are only taxed on South African source income.

Read more: Clarifying resident vs. non-resident tax status for South African expats.

Types of foreign income and how to declare them on your SARS tax return:

1. Foreign employment income:
   – If you meet the 183-day rule and 60-day continuous rule, the first R1.25 million of your foreign employment income may be exempt from tax.
   – Declare the total foreign employment income on your tax return.
   – If applicable, claim the foreign income tax exemption or indicate the taxable portion.
2. Foreign investment income (interest, dividends, rental income):
   – Declare the Rand equivalent of the foreign income on your tax return.
   – You can claim a foreign tax credit if you paid tax on the income in the foreign country.
3. Foreign business income:
   – Declare your foreign business’s net profit (income minus expenses) on your tax return.

Important things to know about foreign income tax in South Africa

1. Foreign tax credit: If you paid tax on your foreign income in the country of source, you can claim a foreign tax credit in South Africa to reduce your tax liability.
2. Double taxation agreements: South Africa has double taxation agreements (DTAs) with many countries. These agreements can help reduce your tax burden by avoiding double taxation on the same income.
3. Currency conversion: Convert your foreign income to South African Rands using the exchange rate applicable on the date of receipt.

If you permanently emigrate from South Africa, do you still have to pay taxes there?

Your tax liability in South Africa after permanently relocating depends on your tax residency status. As a South African tax resident, you’re generally liable for tax on your worldwide income, while non-residents are primarily taxed on income sourced from South Africa only.

How to become a non-resident and protect your foreign income

You must establish non-resident status to avoid paying tax on your foreign income in South Africa. This involves demonstrating a clear break from South African tax residency. SARS will be looking at things like your:

• Physical presence: Spending less than 183 days per year in South Africa (with at least 60 consecutive days abroad) strongly indicates non-residency.
• Financial ties: Minimising financial connections to South Africa, such as bank accounts, property ownership, and business interests, can further support your claim.
• Intention: A clear intention to reside permanently outside South Africa is required.

South African tax exit – formalising your non-resident status with SARS

To solidify your tax position, it’s essential to formally apply for non-resident status with the South African Revenue Service (SARS) as soon as possible. You will need to complete the RAV01 form and the Declaration of Cease to be a Tax Resident form and provide any supporting documentation requested by SARS to support your claim that you no longer meet the requirements to be considered a tax resident.

Once you have satisfied SARS, you will be issued with a Non-Resident Tax Confirmation Letter. This is official proof that you have terminated your tax obligation to SARS, except for income sourced in South Africa.

Read more: Understanding tax emigration from South Africa: a comprehensive guide.

How to avoid double taxation on foreign income between South Africa and your new country of residence

Until you become a non-resident and receive confirmation from SARS, you are expected to pay tax in South Africa, even if you no longer live there. This can be harsh, which is why there are usually mechanisms to mitigate double taxation on your foreign income between South Africa and your new country of residence.

Double Taxation Agreements (DTAs):

South Africa has DTAs in many countries designed to eliminate or reduce double taxation on income earned in one country by residents of another. These agreements typically cover:

• Taxing rights: They allocate taxing rights for different income types (e.g., employment income, dividends, royalties) to specific countries.
• Tax credits: Some DTAs allow you to claim a tax credit in your new country for taxes paid on foreign income in South Africa.

Read more: It’s complicated – South African expats face double tax relief hurdles with SARS.

How do you know if you still qualify as a tax resident in South Africa?

Determining your South African tax residency involves two different tests. If you fail to meet the requirements of the first test (the ordinarily resident test), you can still qualify as a tax resident based on the second test, the physical presence test.

Ordinary residence test – this subjective assessment considers factors like:

• Centre of life: Your permanent home or usual place of abode
• Family ties: The residence of your spouse and children
• Social ties: Your social connections and memberships
• Business interests: Your business activities in South Africa
• Intention: Your intention to return to South Africa

Physical presence test – this objective test looks at days spent in SA. You may be considered a resident if you spend:

• More than 183 days in a tax year in South Africa (including the previous five years) or
• More than 91 days in a tax year (including the previous five years) and 915 days in the last five tax years.

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

Do you still need to file a tax return in South Africa if you’re no longer a resident?

While non-residents generally aren’t obligated to file South African tax returns, there are exceptions:

• Income with a South African source: If you have income originating from South Africa (e.g., rental income, investment income, or pension payments), you must file a return to declare and pay tax on it.
• Double Taxation Agreements: The terms of a DTA between South Africa and your new country of residence might influence your filing obligations.

Benefits of filing a tax return: Even if not strictly required, filing a tax return can have advantages for you:

• Claiming refunds: You can claim tax refunds for any South African tax withheld at source.
• Maintaining tax history: Filing records your tax affairs with SARS, which can benefit future interactions.

Read more:

• How to handle your final South African tax return as an emigrating resident.
• Left South Africa without informing SARS? What now for your tax resident status?

FinGlobal: tax specialists for South African expats

Don’t let your tax situation stress you out. FinGlobal provides expert tax advice to South Africans living and working abroad. Our cross-border financial expertise can help simplify complex tax issues, including:

• Foreign income exemptions: Maximise your tax-free income.
• Tax clearance: Obtain proof that your taxes are up to date for smooth financial transitions.
• Tax refunds: Recover overpaid taxes.
• Tax emigration: Plan and execute a seamless tax exit from South Africa.

Why Choose FinGlobal? We handle the complexities of expat taxes for you, allowing you to focus on your new life abroad. Contact us today for a free, no-obligation consultation to learn how we can assist you.