Since the democratic elections and consequent changes in South Africa, from 1994 onwards, we have gradually become an active participant in the greater global scheme of things.
The past 30 years have seen the world become increasingly integrated through the power of technologies such as the internet, smartphones, and the ever-growing influence of social media.
In light of these changes, many new career and work opportunities have emerged. An attractive exchange rate, abundant creative talent, and a strong work ethic have seen South Africans become highly sought-after employees and business partners.
It was one of these opportunities, offered to a close family member, that first brought questions about tax liability and tax residency to my attention.
As an investment destination, South Africa offers attractive markets and opportunities, and I have seen a significant increase in the number of foreign tax-related inquiries from international clients over the past ten years.
The purpose of this month’s article is thus to provide our readers with a few essential details on exactly how tax liabilities are affected when living or earning abroad.
If you are, or planning to, work outside the country, this piece is for you. I hope you find it helpful and enjoy reading it as much as I enjoyed breaking it down into meaningful portions.
Let’s begin by asking a pressing question…
If I live abroad - do I have to pay taxes in South Africa?
As many families consider the allure of starting a new life in another country or working overseas for several years, the question of tax residency and tax liabilities inevitably comes up in conversation.
South Africa has a complex tax system, and each case requires careful consideration and analysis. In short, the safest answer is: it depends, as the old legal adage goes. It depends on your tax residency status.
Your tax residency can only be one of two, namely that of a resident or a non-resident.
If you are a resident, it means you are liable to pay tax on your worldwide income, regardless of where you live. You are further required to file a tax return (even if you have no income in South Africa), declare your worldwide income (including foreign employment income), and pay expat taxes (subject to the applicable tax treaties).
If you are a non-resident, it means you are only liable to pay tax on your South African-sourced income.
It is clear what the next logical question ought to be then…
How is tax residency determined exactly?
While it may be complex to determine, it all comes down, broadly speaking, to your physical location, where you consider your home to be, and how you generate your earnings and other economic interests.
The criteria, or tests, to determine your tax residency are based on the following:
Physical presence test - the number of days you spend in South Africa in a tax year.
Ordinary residence test - your family, home, and other personal belongings in South Africa, as well as your intention to return.
Economic ties - your employment, business interests, and investments in South Africa.
SARS uses the ordinary residence or physical presence test to establish your tax residency. Whatever the outcome of these tests will determine your tax liability.
I work abroad - what is my tax liability in this situation?
Once it has been determined that you are a tax resident, you are expected to pay tax on your worldwide income, regardless of where it is earned. This is known as ‘expat tax’.
As a South African working overseas, you are considered a “tax resident temporarily abroad” until you cease your tax residency officially by completing the RAV01 form through the SARS e-filing platform.
South Africa also has Double Taxation Agreements (DTAs) with many countries to prevent double taxation. If you live and work in a country with a DTA agreement with South Africa, you qualify for relief from double taxation.
There is also SARS foreign income exemption for South African tax residents living abroad, but it is subject to certain conditions and limitations.
Do I have a tax liability on income earned from foreign employment?
Yes, if you are still considered a South African tax resident. No, you do not have to pay tax on your foreign income if you have been confirmed a non-resident by SARS.
As mentioned earlier, South African residents are taxed on their worldwide income, which includes income derived from foreign employment.
However, you may be eligible for a foreign tax credit to reduce your South African tax liability. Taxes on foreign employment income in South Africa depend on several factors, including:
Residency status - whether you’re a South African resident or non-resident.
Foreign tax credit - if you’ve already paid foreign taxes on your income.
Exemptions - if you qualify for any exemptions under the Income Tax Act, such as those provided by sections 10(1)(o)(i) and 10(1)(o)(ii).
Can I reduce my tax liabilities on my worldwide income?
There is no legal way to avoid paying tax on your worldwide income if you are considered a tax resident, as discussed above. Still, there are legal ways available to you to reduce your tax liabilities. Here are some
Change your tax residency - if you can establish residency in another country with more favourable tax laws, you can reduce your overall tax burden. However, ceasing your tax residency in South Africa can be a complex process and requires careful planning.
Take advantage of tax exemptions and deductions - South Africa offers several tax exemptions and deductions for individuals working abroad. These include the foreign income exemption, which allows you to exclude up to R1.25 million of your foreign income from your taxable income.
Load up on tax-efficient investment vehicles - several tax-efficient investment vehicles, such as retirement annuities and tax-free savings accounts, can help you reduce your overall tax liability.
These strategies will depend on the length of time you spend in South Africa each year, your family and business ties, and the amount of your income earned in South Africa.
By understanding the tax implications of working abroad as a South African and taking advantage of the available tax breaks, you can minimize your expat tax liability and maximize your after-tax income.
What are some of the benefits of being a non-tax resident?
Your tax residency is only considered completed once SARS has confirmed this in writing by issuing a non-resident confirmation letter.
Non-tax residency encompasses the following benefits:
No more South African taxes - you don’t have to pay taxes to SARS on your global income.
Simplified tax returns - you don’t need to file annual tax returns in South Africa unless you still earn an income here.
Easier money transfers - the letter can help streamline international money transfers.
Early retirement fund withdrawals - becoming a non-resident offers you the opportunity to cash in your retirement annuity before the age of 55 (although I strongly advise that you do this within the scope of a well-developed retirement strategy and plan).
Closing Remarks
In this article, I have decided to take a broader, principle-based approach to taxation on foreign income and related topics, rather than attempting to address every single eventuality and situation.
The main reason I did this is that taxation in SA is a truly complicated matter, and maintaining tax compliance across two geographical jurisdictions is even more so.
Given the complexity of our own and international tax laws, I strongly recommend consulting a qualified and registered tax practitioner before making significant financial, employment, or immigration decisions.
Doing so without due consultation will inevitably lead to unnecessary tax liabilities or, even worse, severe penalties. You may need a one-on-one consultation with us to propose the best tax planning strategy for you moving forward.
Earning from foreign sources can be highly beneficial and financially rewarding over the long term, but make the effort to familiarise yourself with the correct information and advice. Cross-border taxation, legal compliance, and liabilities can be a genuine minefield if not handled correctly.
Contact us at +27 82 561 7024 or myrtleo@mbasa.org for a free, no-obligation consultation, and let’s ensure you are on the right track from day one.
The past 30 years have seen the world become increasingly integrated through the power of technologies such as the internet, smartphones, and the ever-growing influence of social media.
In light of these changes, many new career and work opportunities have emerged. An attractive exchange rate, abundant creative talent, and a strong work ethic have seen South Africans become highly sought-after employees and business partners.
It was one of these opportunities, offered to a close family member, that first brought questions about tax liability and tax residency to my attention.
As an investment destination, South Africa offers attractive markets and opportunities, and I have seen a significant increase in the number of foreign tax-related inquiries from international clients over the past ten years.
The purpose of this month’s article is thus to provide our readers with a few essential details on exactly how tax liabilities are affected when living or earning abroad.
If you are, or planning to, work outside the country, this piece is for you. I hope you find it helpful and enjoy reading it as much as I enjoyed breaking it down into meaningful portions.
Let’s begin by asking a pressing question…
If I live abroad - do I have to pay taxes in South Africa?
As many families consider the allure of starting a new life in another country or working overseas for several years, the question of tax residency and tax liabilities inevitably comes up in conversation.
South Africa has a complex tax system, and each case requires careful consideration and analysis. In short, the safest answer is: it depends, as the old legal adage goes. It depends on your tax residency status.
Your tax residency can only be one of two, namely that of a resident or a non-resident.
If you are a resident, it means you are liable to pay tax on your worldwide income, regardless of where you live. You are further required to file a tax return (even if you have no income in South Africa), declare your worldwide income (including foreign employment income), and pay expat taxes (subject to the applicable tax treaties).
If you are a non-resident, it means you are only liable to pay tax on your South African-sourced income.
It is clear what the next logical question ought to be then…
How is tax residency determined exactly?
While it may be complex to determine, it all comes down, broadly speaking, to your physical location, where you consider your home to be, and how you generate your earnings and other economic interests.
The criteria, or tests, to determine your tax residency are based on the following:
Physical presence test - the number of days you spend in South Africa in a tax year.
Ordinary residence test - your family, home, and other personal belongings in South Africa, as well as your intention to return.
Economic ties - your employment, business interests, and investments in South Africa.
SARS uses the ordinary residence or physical presence test to establish your tax residency. Whatever the outcome of these tests will determine your tax liability.
I work abroad - what is my tax liability in this situation?
Once it has been determined that you are a tax resident, you are expected to pay tax on your worldwide income, regardless of where it is earned. This is known as ‘expat tax’.
As a South African working overseas, you are considered a “tax resident temporarily abroad” until you cease your tax residency officially by completing the RAV01 form through the SARS e-filing platform.
South Africa also has Double Taxation Agreements (DTAs) with many countries to prevent double taxation. If you live and work in a country with a DTA agreement with South Africa, you qualify for relief from double taxation.
There is also SARS foreign income exemption for South African tax residents living abroad, but it is subject to certain conditions and limitations.
Do I have a tax liability on income earned from foreign employment?
Yes, if you are still considered a South African tax resident. No, you do not have to pay tax on your foreign income if you have been confirmed a non-resident by SARS.
As mentioned earlier, South African residents are taxed on their worldwide income, which includes income derived from foreign employment.
However, you may be eligible for a foreign tax credit to reduce your South African tax liability. Taxes on foreign employment income in South Africa depend on several factors, including:
Residency status - whether you’re a South African resident or non-resident.
Foreign tax credit - if you’ve already paid foreign taxes on your income.
Exemptions - if you qualify for any exemptions under the Income Tax Act, such as those provided by sections 10(1)(o)(i) and 10(1)(o)(ii).
Can I reduce my tax liabilities on my worldwide income?
There is no legal way to avoid paying tax on your worldwide income if you are considered a tax resident, as discussed above. Still, there are legal ways available to you to reduce your tax liabilities. Here are some
Change your tax residency - if you can establish residency in another country with more favourable tax laws, you can reduce your overall tax burden. However, ceasing your tax residency in South Africa can be a complex process and requires careful planning.
Take advantage of tax exemptions and deductions - South Africa offers several tax exemptions and deductions for individuals working abroad. These include the foreign income exemption, which allows you to exclude up to R1.25 million of your foreign income from your taxable income.
Load up on tax-efficient investment vehicles - several tax-efficient investment vehicles, such as retirement annuities and tax-free savings accounts, can help you reduce your overall tax liability.
These strategies will depend on the length of time you spend in South Africa each year, your family and business ties, and the amount of your income earned in South Africa.
By understanding the tax implications of working abroad as a South African and taking advantage of the available tax breaks, you can minimize your expat tax liability and maximize your after-tax income.
What are some of the benefits of being a non-tax resident?
Your tax residency is only considered completed once SARS has confirmed this in writing by issuing a non-resident confirmation letter.
Non-tax residency encompasses the following benefits:
No more South African taxes - you don’t have to pay taxes to SARS on your global income.
Simplified tax returns - you don’t need to file annual tax returns in South Africa unless you still earn an income here.
Easier money transfers - the letter can help streamline international money transfers.
Early retirement fund withdrawals - becoming a non-resident offers you the opportunity to cash in your retirement annuity before the age of 55 (although I strongly advise that you do this within the scope of a well-developed retirement strategy and plan).
Closing Remarks
In this article, I have decided to take a broader, principle-based approach to taxation on foreign income and related topics, rather than attempting to address every single eventuality and situation.
The main reason I did this is that taxation in SA is a truly complicated matter, and maintaining tax compliance across two geographical jurisdictions is even more so.
Given the complexity of our own and international tax laws, I strongly recommend consulting a qualified and registered tax practitioner before making significant financial, employment, or immigration decisions.
Doing so without due consultation will inevitably lead to unnecessary tax liabilities or, even worse, severe penalties. You may need a one-on-one consultation with us to propose the best tax planning strategy for you moving forward.
Earning from foreign sources can be highly beneficial and financially rewarding over the long term, but make the effort to familiarise yourself with the correct information and advice. Cross-border taxation, legal compliance, and liabilities can be a genuine minefield if not handled correctly.
Contact us at +27 82 561 7024 or myrtleo@mbasa.org for a free, no-obligation consultation, and let’s ensure you are on the right track from day one.
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082 561 7024
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