Concerned about Expat Tax in South Africa? As a South African employed abroad, you could be liable for tax in South Africa on your worldwide income.
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Who can be taxed on their foreign employment income?
What is the ordinary resident test?
Someone is an ‘ordinarily resident’ where they have their usual or primary residence – somewhere that can be described as their real home. The question asked here is, “where do you call home after you’re done wandering the world?”. Here are a few factors to be taken into consideration as a guideline:
- Your habitual home – the place where you stay most often, where you and your family have a life
- The location of your personal belongings
- Your nationality
- Family and social relations, factors like schools, places of worship and sports or social clubs
What is the physical presence test?
When you cease to be ordinarily resident in South Africa – for example, where you left South Africa to work abroad without the intention of returning, the physical presence test will be used to determine if you are a tax resident by SARS (South African Revenue Service). It is based on the number of days you spent in South Africa over a specific period. The test is only applicable to you if you are not an ordinary resident in South Africa for any portion of the tax year
What are the consequences if you are a South African tax resident?
- You will be taxed on your worldwide income
- You may qualify for an exemption of R1.25 million on your foreign employment income.
Do you qualify for foreign employment income tax exemption?
If you’re working abroad as a South African tax resident, you may be eligible for relief in terms of the foreign employment income exemption as per Section 10(1)(o)(ii) of the South African Income Tax Act, if you meet its requirements.
- The exemption will only apply to certain types of employment services that you render abroad if you are outside of South Africa for longer than 183 days in aggregate during any twelve-month period, starting or ending in a tax year, 60 days of which must be continuous.
- The application of this exemption is limited from 1 March 2020 and is capped at the first R1.25 million earned abroad.
Can you avoid paying expat tax if you emigrate financially?
Financial emigration (also known as formal emigration) is not going to solve any tax problems for you, unfortunately. This is because financial emigration is an exchange control process and is but one of a handful of factors considered in the assessment for determining whether or not a South African has broken tax residency. Even if you’ve emigrated financially, your tax residence is not automatically terminated, the deciding factor is whether you’ve broken your ordinary residence, or you’re no longer physically present in South Africa.
Are you a non South African tax resident interested in exiting the South African tax system?
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