So, you’re living the dream abroad, or maybe just about to pack your bags and chase that international career opportunity? Either way, one thing that makes everyone scratch their heads is the tax issue for South Africans working abroad. If this is you, you’re not alone! Whether you’ve been soaking up the sun in Spain for years or dreaming of landing that first overseas contract, figuring out your tax situation can feel like trying to solve a puzzle in the dark. But here’s the thing: it all comes down to this whole ‘tax residency’ business, and it’s not as scary as it sounds. We will break down what tax residency means, look at whether you still need to worry about the South African Revenue Service (SARS), and how to make sense of all those tax rules and exemptions when working overseas as a South African. Think of us as your friendly guide to sorting your tax life, no matter where you find yourself.
Do I have to pay taxes in South Africa if I live and work abroad?
Whether or not you must pay tax back in South Africa while abroad depends on your tax residency status, there are two possible options:
- Resident: individuals who meet the criteria for tax residency in South Africa must pay tax on worldwide income, regardless of where they live.
- Non-resident: For tax purposes, non-residents are only liable for tax on income sourced in South Africa.
As long as you are a South African tax resident, you have a duty to:
- File your tax return: Even without income in South Africa, you still need to file an annual tax return. This keeps your record straight with SARS.
- Declare worldwide income: Includes earnings you’ve pocketed from foreign employment, investments, and rental properties.
- Pay your expat taxes: You must pay taxes where they’re due on your worldwide income, subject to applicable double taxation treaties.
Read more: Remote work, real rules – tax compliance for South African digital nomads.
How is tax residency determined?
So, how does SARS decide if you’re still a tax resident? They’ve got two ways of looking at it. The first test is a bit like reading between the lines – it’s a subjective test called the ‘ordinarily resident’ test. SARS closely examines whether you still consider South Africa as your home base, which means examining your life to look for signs that you intend to come back someday.
The other test is more straightforward: the ‘physically present’ test. Counting the days you’ve been in South Africa is a simple matter. And here’s the kicker: even if you don’t seem like you’re ‘ordinarily resident,’ spending enough time in the country can still make you a tax resident.
Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
Tax for South Africans working abroad – how does it work?
As mentioned, South African tax residents must pay tax on their global earnings, no matter where they live. This has become known as ‘expat tax’. As a South African working overseas, you will be treated as a ‘tax resident temporarily abroad’ until you officially become a non-resident by completing tax emigration through SARS.
- Double Taxation Agreements (DTAs): South Africa is a party to several DTAs with many countries to avoid unfair double taxation. If you live and work in such a country, you can apply for relief from double taxation.
- SARS foreign income exemption: If they meet the conditions set by SARS, South Africans working abroad can apply to have up to R1.25 million of their income exempt from tax.
Read more: What is the SARS foreign income exemption, and can you use it?
What is the tax on foreign employment income in South Africa?
South African tax residents will be taxed at home by SARS on worldwide and foreign employment income. However, you might be eligible for a foreign tax credit to reduce South African tax liability. Tax on foreign employment income in South Africa depends on several factors, including whether or not you’ve already paid foreign taxes on your income and your eligibility to use any exemptions under the Income Tax Act, such as those provided by sections 10(1)(o)(i) and 10(1)(o)(ii).
Read more:
- A comprehensive guide to the SARS foreign income tax exemption for South Africans working abroad.
- South African working abroad? How to handle foreign income on SARS tax return.
How to avoid paying tax on your foreign income in South Africa
Let’s get real: as long as you remain a South African tax resident, you can’t wholly dodge paying taxes to SARS on your global income. But you can make smart moves to lighten the load.
One big step is changing tax residency. You might pay less overall if you can legally establish residency in another country with lower taxes. Just remember, this isn’t a quick fix and needs careful planning. You can also use tax exemptions and deductions like the foreign income exemption to exclude a good chunk of your foreign earnings from your SARS tax return. And don’t forget about making the most of tax-smart investments like retirement annuities and tax-free savings accounts. How much you save depends on your situation – how long you’re away, your ties to South Africa, and how much you earn. Understanding the rules and using the available breaks can help you keep more of your hard-earned money in your pocket.
How to become a non-tax resident of South Africa
There is only one legitimate way to avoid paying taxes to SARS on your foreign earnings: ceasing your tax residency. Here is our step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa. Once your status has been officially updated with the revenue authority, you will receive a Non-Resident Confirmation Letter from SARS.
This status change to non-resident for tax purposes has several additional benefits for South Africans living abroad, including:
- No more South African taxes: Your worldwide income is safe from SARS, and you won’t need to file tax returns with SARS unless you are still earning income in South Africa.
- Simplified money transfers: Your non-resident tax status can help streamline transferring money internationally.
- Early retirement fund access withdrawals: Becoming a non-resident is your ticket to cashing in the full value of your retirement annuity before age 55.
FinGlobal: tax compliance specialists for South African expats
Dealing with taxes in South Africa while living abroad? It’s a lot, we know. That’s why FinGlobal is here – to take the stress off your shoulders. We’re your first port of call for all things relating to expat tax. Our team of qualified professionals can help you determine your tax residency, assess your tax liability, and create a tax emigration plan that works for you. We’ll ensure you stay on the right side of the law, and we can also assist with retirement annuity withdrawals and international money transfers. Want to learn more about our trusted tax services for South Africans working abroad? Just leave your contact info below, and we’ll contact you to discuss your requirements.
Send us a message
Leave your details below including a short message and a financial consultant will contact you.
Licensed South African Financial Services Provider FSP # 42872
You have Successfully Subscribed!
FinGlobal Newsletter Subscription
Subscribe to the FinGlobal newsletter to receive all the latest news and information regarding our services and South African Expats.