Imagine this: You’re enjoying the sun on a beach in Thailand, sipping a coconut, when you receive an unexpected email. It’s from the South African Revenue Service (SARS), not a tax bill. It’s a tax refund from South Africa! While this might seem like a distant dream for many South African expats, it’s not impossible. Finding your way through the complexities of international taxation can be challenging for South Africans abroad, often leading to overpayments and missed opportunities for SARS tax refunds. This article will guide you through some common tax-related mistakes that South African expats make while dishing the dirt on how to claim tax back from SARS.
Five common mistakes expats make with personal income tax in South Africa.
1. Not understanding how your South African tax residency impacts your tax filing obligations.
Many expats mistakenly believe that leaving South Africa automatically exempts them from taxation in South Africa. This is incorrect because South Africa has a residence-based tax system. What does this mean? You can still be considered a tax resident – even if you live abroad – if you meet specific criteria. It’s worth pointing out here that SARS is entitled to treat you as a South African tax resident (temporarily abroad) until you officially notify the tax authority that you no longer meet the requirements for tax residency and that they should update your tax status to a non-resident.
Read more: Citizenship vs tax residency – what’s the difference?
What are the criteria involved in determining tax residency in South Africa?
These are factors that SARS looks at in deciding whether you’re in or out of the tax system, and can include factors like the number of days spent in South Africa, the location of your permanent home, and the centre of your vital interests. Misunderstanding these criteria can lead to unexpected tax bills and potential penalties, which is the opposite of a welcome tax refund from SARS.
Read more: Taxing matters: a guide to understanding South African tax residency for expats.
Long story short? As a South African tax resident, you must pay tax on your worldwide income. As a non-resident, you will only be expected to pay tax on income sourced from within South Africa.
Read more: Clarifying resident vs. non-resident tax status for South African expats.
2. Neglecting to file tax returns with SARS once you’ve left South African shores.
A common mistake is overlooking your need to file tax returns with SARS. Even if you believe you have no tax liabilities, you cannot ignore your tax filing responsibility in SA. It helps maintain a record of your income tax affairs in South Africa and can prevent potential issues in the future. Failure to file can result in significant penalties and interest charges. Again, the exact opposite of a tax refund, which is not what we want.
Read more: Tax warning for South Africans looking to emigrate: What you need to know.
3. Not understanding how foreign tax credits or tax rebates work in South Africa.
Suppose you’re already paying taxes on your income in your new country of residence. In that case, there’s a strong chance you’re eligible for foreign tax credits in South Africa, which can be used to reduce your South African tax liability significantly. However, claiming these credits requires careful documentation, including foreign tax returns and proof of tax payments. Seeking professional guidance can help ensure you utilise all available credits accurately and on time.
Read more: Explained: tax relief vs tax refunds in South Africa.
4. Do not understand how double taxation agreements (DTAs) work and how they impact your tax liability in South Africa.
South Africa has entered into Double Taxation Agreements (DTAs) with many countries to prevent unfair double taxation of income in both countries. Understanding the specific provisions of the DTA between South Africa and your country of residence is essential. Leveraging these agreements can help minimise your overall tax burden.
5. Not keeping accurate records of everything related to personal income tax in South Africa and your new country of residence.
Maintaining accurate and comprehensive financial records is essential for tax compliance and claiming potential tax refunds from SARS. This includes income statements, expense receipts, bank statements, and other relevant documentation. Electronic record-keeping can make it easier to organise and access your financial information when needed.
How to avoid making these personal income tax mistakes once you leave South Africa
- Seek professional guidance: International tax laws are complex. Consult a qualified tax advisor specialising in cross-border taxation for personalised advice to ensure you understand your tax obligations and maximise tax benefits.
- Keep your finger on the pulse of change: Tax laws and regulations constantly evolve. Stay informed by subscribing to relevant newsletters and following reputable tax resources in South Africa and your new country of residence.
- Look at the bigger picture and plan: Proactive tax planning can minimise your tax liabilities. Structure your income and investments tax-efficiently. Seek advice early in your emigration process for optimal tax outcomes.
Read more: Don’t get caught in the tax trap – claiming your South African expat tax exemption.
Can South African expats get tax refunds?
Yes! Understanding and fulfilling your tax obligations as a South African expat is essential. By being aware of common mistakes and taking proactive steps, you can minimise your tax burden, avoid costly penalties, and even claim valuable tax refunds from SARS.
How to claim tax back from SARS? What potential tax refunds are there for South African expats?
If you’ve made a retirement fund withdrawal: If you withdrew from a South African retirement fund (pension, annuity, or provident fund) within the last three years while living and working abroad and contributing to the fund, you may be eligible for a tax refund from SARS.
- Tax on lump sum withdrawals is determined by Double Taxation Agreements, which may allocate taxing rights to either the country of residence or the source country.
- If eligible for a tax refund from SARS, you must object to SARS within three years of receiving the lump sum.
If you’ve been charged withholding tax on interest: Non-residents receiving South African-sourced interest payments are subject to a 15% withholding tax.
- You may qualify for a reduced withholding tax rate, which requires a specific application.
- To claim a tax refund from SARS for overpaid withholding tax, the South African entity making the payment must submit a “Withholding Tax on Interest Declaration” to SARS within three years of the interest payment.
If you’ve received pension or annuity income: Non-residents receiving pension or annuity income from South Africa are generally subject to income tax.
- You may qualify for tax relief under a Double Taxation Agreement. You must submit an annual RST01 application to SARS to claim this relief.
- If tax has already been deducted, you can claim a tax refund from SARS by submitting an RST02 application.
You might also qualify for a tax refund from SARS if you:
- Spent part of the tax year abroad while earning income from a South African employer.
- Had more than one employer during the tax year.
- Received bonuses, redundancy payments, or other lump sums.
- Received interest income from South African sources.
- Had not filed tax returns for some time.
Read more:
- FYI: Tax refunds for South African expats.
- It’s complicated – South African expats face double tax relief hurdles with SARS.
FinGlobal: tax refund specialists for South Africans abroad
Don’t let potential tax refunds in South Africa slip through your fingers. Let FinGlobal take the hassle out of claiming what SARS owes you. We’ll handle all the paperwork and deal with SARS directly, so you don’t have to lift a finger.
Best of all, we don’t just handle tax refunds from SARS – we can also assist you with tax emigration, tax clearance, international money transfers and more.
Want to explore our services further? Simply leave your contact details below, and we’ll contact you to discuss your situation with a free specialist consultation.