If you’re a South African living abroad, you’ve probably heard terms like non-resident tax in South Africa and foreign income tax in South Africa being thrown around. But what do they mean? Are they not the same thing? And how do they affect you if you’ve packed your bags for a new life overseas?
Whether you’re already an expat, thinking about ceasing tax residency in South Africa, or just trying to figure out your tax residency status in South Africa, this article will help you understand the key differences between non-resident tax and foreign tax.
We’ll break down what each term means, explore how to declare non-residency to SARS, and outline the tax implications for non-residents in South Africa so you can make informed decisions and avoid unexpected tax bills.
What is non-resident tax in South Africa?
Let’s start by clarifying what non-resident tax in South Africa means. If you’ve officially ceased tax residency in South Africa, you’re considered a non-resident. This change in status means you’re no longer taxed on your worldwide income; you’re only liable for tax on income sourced within South Africa. For instance, if you’re owning property as a non-resident in South Africa and you’re earning rental income from that property, you’ll still need to pay tax on that income. But if you’re working abroad and earning a salary outside South Africa, SARS won’t tax you on that income anymore.
It’s important to note that non-residency isn’t automatic, just because you’ve left South Africa behind. You need to formally declare non-residency to SARS by following the SARS non-resident declaration process. Without this, you’re still seen as a South African tax resident, and SARS is entitled to expect you to report and pay tax on your global earnings.
Read more: Clarifying resident vs. non-resident tax status for South African expats.
What is foreign income tax in South Africa?
Now let’s talk about foreign income tax in South Africa. If you’re still considered a tax resident of South Africa, you’re taxed on your worldwide income. This means that even if you live and work abroad, SARS expects you to declare and pay tax on your foreign salary, investment income, or rental income from property in another country. This is often known as ‘expat tax’.
Read more: Hot question – do you pay tax in South Africa if you live abroad?
There is some relief for South Africans working abroad in the form of the foreign income tax exemption in South Africa. This allows you to earn up to R1.25 million in foreign employment income tax-free, provided you meet the conditions. To qualify, you need to work outside South Africa for more than 183 days in 12 months, including at least 60 consecutive days abroad. Any amount above the exemption threshold is still taxable in South Africa.
Long story short?
- Foreign income tax applies if you’re a South African tax resident and earning income from sources outside South Africa.
- Non-resident tax applies if you’ve officially become a non-resident, and you only pay income tax that comes from within South Africa.
How to become a tax non-resident in South Africa
So, how do you avoid paying tax on your foreign income in South Africa? Is there a way to escape expat tax after emigration? We’re glad you asked. You can avoid expat tax by becoming a non-resident for tax purposes.
To become a non-resident, you need to declare non-residency to SARS by completing the SARS non-resident declaration process, also known as tax emigration. This involves informing SARS that you no longer meet the requirements for tax residency, usually because you’ve left South Africa permanently.
The process typically includes:
- Updating your contact information on SARS eFiling using the RAV01 form, and then submitting a Declaration of Cease to be a Tax Resident form.
- Providing supporting documents, such as a tax residency certificate from your new country, proof of a permanent move, and a foreign employment contract.
- Understanding that when you stop being a tax resident, SARS may impose an exit tax (capital gains tax) on your worldwide assets, as if you sold them on the day your tax residency ceased.
Once you’ve completed this process, you’re only liable for tax on South African-sourced income like rent, dividends, or profits from selling property in South Africa.
Read more:
Owning property as a non-resident in South Africa
If you’re wondering whether you can still own property as a non-resident in South Africa, the answer is yes, you absolutely can. However, any income you earn from that property, such as rental income, will still be subject to South African tax. If you sell the property, you may also need to pay capital gains tax on any profit.
Becoming a non-resident doesn’t mean cutting all ties with South Africa. It simply changes how and where you’re taxed.
Read more: Ceasing South African tax residency – what happens to your assets afterwards?
Understanding your tax obligations as an expat
The key lesson here is that your tax residency status in South Africa is what determines your tax obligations. If you’re still a South African tax resident, SARS will expect you to declare and pay tax on your global income, including your earnings from abroad. If you’ve successfully ceased tax residency in South Africa, you’re only taxed on your South African-sourced income.
The decision to become a non-resident isn’t one to take lightly. It has tax implications, including the potential exit tax when you cut your tax ties with South Africa. That’s why it’s important to fully understand the tax implications for non-residents in South Africa and get professional guidance when navigating the SARS non-resident declaration process.
Read more: SARS streamlines tax filing process on eFiling for South Africans working abroad.
Non-resident tax vs. foreign tax
To sum up:
- Foreign tax applies when you’re a South African tax resident and earning income from outside South Africa.
- Non-resident tax applies when you’ve formally become a non-resident, and you’re only taxed on income sourced within South Africa.
If you’re living and working abroad, you need to know your tax residency status and, if necessary, take steps to declare non-residency to SARS.
FinGlobal: expat tax specialists for South Africans abroad
Need expert assistance with your tax situation? FinGlobal’s team of cross-border tax specialists is here to help. We can guide you through the process of ceasing tax residency in South Africa, help you understand the tax obligations for South African non-residents, and ensure you stay compliant while keeping your tax affairs as simple as possible. We can even assist you with cashing in your South African retirement annuity, international money transfers and more.
Contact FinGlobal today to start your cross-border financial and tax transition with confidence.
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