Starting from the 1st of March 2020, the South African Revenue Service (SARS) has implemented new tax legislation that is aimed at collecting taxes from South Africans that are employed abroad, particularly those that still hold strong bonds with their native country. Before the introduction of this new legislation, expatriates were not required to pay SARS any tax on the income received from an employer outside of South Africa. However, under the new legislation, South Africans will only be entitled to a tax exemption on their gross income up to the amount of 1.25 million Rand per year. If they are considered to be a tax resident of South Africa, any income above this threshold will be taxable by SARS.

Determining Tax Residency

In order to determine if an expat is liable to pay taxes in South Africa, one needs to establish whether or not the individual is a South African tax resident. It is important to note that tax residency is not linked to an individual’s citizenship status, this is up to the discretion of The Department of Home Affairs. Tax residency will also remain unchanged after being granted permission by The South African Reserve Bank (SARB) to financially emigrate to another country. It is up to SARS to determine an individual’s tax residency on a case-by-case basis as each case is different and will need to be assessed according to its own merit.

Firstly, SARS will try to establish if an individual is considered to be “ordinarily resident” in South Africa. SARS will investigate various parts of an individual’s life in South Africa such as their permanent residence, employment and economic activity, family life, citizenship, frequency and duration of visits, and also what SARS has termed an individual’s “intentions” in the country. SARS uses all the information it can gather to try and establish whether an individual still has a vested interest in South Africa. If an expat does not truly intend to make a new country their permanent home, they will be considered ordinarily resident in South Africa, in which case they would still be considered a tax resident of the country.

If you are not considered to be ordinarily resident in South Africa in a specific tax year, SARS could also use a “physical presence” test to decide if you are liable for taxes in South Africa. According to this test, you are considered a tax resident if you have been in South Africa for more than 91 days in a tax year, you have been in the country more than 91 days in each of the five preceding tax years, and you have been in the country for a total of more than 915 days in those preceding five years. If you meet all of these criteria you are liable for tax in South Africa for that financial year regardless of your “ordinarily resident” status.

Double Taxation Agreements

Individuals who are tax residents of more than one country could seek relief in the form of a double taxation agreement (DTA). If there is a DTA between a foreign country and South Africa, the tax payable will be stipulated in these agreements which were put in place to avoid individuals having to pay double tax on certain things. The provisions in these agreements vary between countries and can often be fairly complicated to interpret.

With the various complexities surrounding taxation and an ever-changing financial landscape, the importance of entrusting your finances to professionals who have your best interest at heart can not be overstated. Visit https://www.booysengroup.co.za/ for professional support and peace of mind.