The allure of tax-free earnings and abundant opportunities in the Middle East has long drawn South African expats to countries like Saudi Arabia and the UAE. However, the tide is turning. Driven by so-called “Saudisation” and “Emiratisation” policies prioritising local employment, many individuals unexpectedly have to return to South Africa. This sudden shift, particularly impacting those in sectors like healthcare, IT, and construction, raises critical questions about the tax implications of their homecoming, especially for those who may have fallen off the compliance wagon while living and working abroad.
South African Expats returning home – the tax consequences of moving back
One of the biggest worries for South Africans returning home is the South African Revenue Service (SARS) examining their tax affairs.
The truth is expats who relocated overseas some years ago without officially ceasing their tax residency with SARS might face substantial tax liabilities upon their return to South Africa.
How did this happen? Often, through a lack of understanding, individuals fail to report their foreign earnings abroad or stop submitting tax returns, choosing to neglect their obligations to SARS after their departure. In the past, many mistakenly believed living outside South Africa would automatically absolve them of tax responsibilities. However, this is not the case without formal recognition from SARS of non-resident tax status.
Increased global financial transparency, facilitated by initiatives such as the OECD’s Common Reporting Standard (CRS), now enables tax authorities worldwide to exchange financial data, which means you cannot hide anything from SARS. Because the revenue authority is now actively monitoring and identifying foreign income earned by South African expats, this creates a risk of historical non-compliance, a situation SARS takes seriously when you return to South Africa.
Read more: Left South Africa without informing SARS? What now for your tax resident status?
Planning is key to avoiding tax issues when returning to South Africa
The first step before leaving South Africa to live and work abroad should be professional tax planning, but for many, that is no longer an option. Those expats forced to return to South Africa without having their tax affairs in order will need to explore other avenues to remedy their non-compliance.
Read more: Steps to take if your SARS tax compliance status shows as “non compliant.”
Unless they ceased tax residency with South Africa temporarily by applying for a Double Tax Agreement (DTA) or permanently through tax emigration, many expats could now possibly owe SARS tax on worldwide income earned after they left the country.
A double tax agreement is an internationally binding agreement between two countries intended to avoid double-income taxation by allocating taxing rights based on specific criteria. However, it is essential to note that just because South Africa has DTAs in place (as is the case with Saudi Arabia and the UAE) does not mean they kick in automatically to keep worldwide income safe from SARS.
Alternatively, South African tax residents working abroad can use the foreign employment income exemption, which provides tax relief for foreign earnings up to R1.25 million per year of assessment, provided the requirements for its use are met. To protect income above this threshold, it would be worthwhile to weigh up the pros and cons of ceasing tax residency by tax emigration.
Read more: The dangers of not completing tax emigration after you leave South Africa.
South Africans returning home – timing is key for expats
When an expat decides to return to South Africa or confirms plans for permanent resettlement, they have a 21-business-day window to inform SARS of this new change in their tax residency details. While it is possible to straighten out your tax affairs as an expat returning to South Africa, it’s best to take corrective steps immediately after arrival.
For those who left South Africa years ago and are now liable for tax generated on income and gains during their absence, a request to SARS to backdate the cessation of tax residency to your departure date can be submitted. This process can be executed by means of the DTA route or by tax emigration.
Read more: Expat tax compliance: take action now to avoid financial penalties from SARS.
South African expats returning home – the question of re-establishing tax residency
Those who have formally completed tax emigration and are returning to South Africa permanently must provide SARS with substantial justification for re-establishing tax residency. Having been outside the South African tax system for an extended period, it will be necessary for you to explain your circumstances clearly. You will need to present a well-documented case to SARS, including supporting evidence such as termination of employment letters and a Tax Residency Certificate from the relevant foreign tax authority to substantiate your non-resident status in South Africa during your absence.
For expats forced to return home to South Africa following retrenchment or employment contract non-renewal abroad, there is room to maintain your non-tax residency status. However, consulting with cross-border tax specialists is essential to ensure that non-resident status is correctly maintained for tax purposes during your temporary return to South Africa.
FinGlobal: expat tax compliance specialists
Are you an expat in the process of moving back to South Africa? Got a complicated tax situation? We’d love to hear about it! FinGlobal specialises in tax compliance, and we’re ready to assist returning expats in straightening their tax residency status and achieving compliance with SARS. With experience helping thousands of expats worldwide, we know exactly what it will take to simplify your return to South Africa. To get personalised cross-border tax assistance tailored to your unique circumstances, please drop your contact information below, and we’ll contact you.