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The South Africa Expat Tax is a tax law that affects South African citizens who are living and working abroad. In essence, it requires them to pay tax on their foreign income in South Africa and any tax they may be paying in their host country.
The law has been controversial since its introduction, with many South African expats feeling that they are being unfairly penalised for living and working abroad.
If you’re a South African expat or you’re considering moving abroad, it’s important to understand the implications of the Expat Tax and how it could affect your finances.
In this blog post, we’ll take a closer look at the Expat Tax, who it applies to, and what you can do to ensure you comply with the law while maximising your income.
Table of contents
- Tax Residency For South African Expats
- How South African Expat Tax Works
- Are You Tax Resident In South Africa?
- South African Expat Tax And Retirement Savings
- South Africa Expat Tax And Capital Gains
- Avoiding the South African Expat Tax
- Telling SARS You Are Not A Tax Resident In South Africa
- South Africa Expat Tax Law FAQ
- Related Articles, Guides and Insights
- Questions or Comments?
Tax Residency For South African Expats
The South African Revenue Service (SARS) believes too many expats must take their financial responsibilities seriously by filing nil tax returns when earning more than R1.25 million a year from outside the country.
However, many expats are stuck in a tax no man’s land of their own making because they ignore or misinterpret the rules.
They do not live in South Africa and work abroad, which leads them to consider they are not tax residents in South Africa and therefore owe nothing to SARS.
But controversial South African tax law clearly states they are South African tax residents and should pay tax in South Africa if they earn more than R1.25 million a year while overseas.
The law in question is the Income Tax Amendment Act 2017.
Many expats falsely believe the law was proposed but never enacted.
However, the law was enacted, and the new rules apply to expats working abroad who remain tax resident in South Africa.
Our tax guide aims to sort out the confusion for South Africans working abroad who need clarification on how the amended tax laws impact them.
How South African Expat Tax Works
The expat tax is paid by those considered ordinarily resident or placed in South Africa by the physical presence test.
Once expats have worked out their tax status in South Africa, the rest is easy:
- A South African tax resident
- Outside of South Africa for 183 days (including a continuous 60 days in a row) in any rolling 12-months
- Pays income tax on earnings of R1.25 million or more
- In South Africa
- Regardless of if tax is paid on the earnings in another country
‘Employed’ includes contractors
‘Earnings’ include a salary, holiday pay, wages, overtime, any bonus, gratuity, commission, fee, emolument or allowance. The R1.25 million exemption adds airfares, accommodation, medical cover, school fees and other benefits.
Are You Tax Resident In South Africa?
South Africans are not masters of their destinies because SARS has the final word.
That means South Africans may live and work abroad for many years. However, if they still have ties with their country of birth or intend to return there, they may still be South African residents and liable to pay tax on their worldwide earnings to SARS in Pretoria even though they have not set foot in the country for years.
To test residence, SARS will investigate several factors based on cases before the courts rather than laws decided by the national assembly.
Two tests apply – the ordinarily resident test and the physical presence test.
A South Africa tax resident is someone who is ordinarily resident or not ordinarily resident but meets the conditions of the physical presence test.
Ordinarily resident test
Residence is a matter of fact, not choice and testing if an expat is ordinarily resident involves a forensic sweep of their life seeking the answers to many questions.
Questions to test ordinary residence include:
- Does the expat intend to return or retire to South Africa?
- Where is the expat’s main home?
- Where does the expat spend the most time?
- Where is the expat’s place of business?
- Where does the expat’s family spend the most time?
- Investigating the expat’s finances, such as where they bank and have credit cards
- What is the expat’s residence status in another country?
- Do they need a work permit abroad?
- What is the expat’s nationality?
- Does the family remain in South Africa?
- Does the family have strong ties to South Africa, ie schools, work and other personal ties?
- Has the expat applied for residence or citizenship abroad?
- How long does the expat spend in South Africa each tax year?
Physical presence test
The physical presence test applies to the year of tax assessment and the previous five years.
For 2023-24, the test looks back to 2018-19.
Expats who have spent 91 days or more in South Africa during the year of assessment and each of the previous five years and a total of 915 days or more over the five preceding years are considered tax residents.
The physical presence test comes with some conditions:
- The ordinary residence test takes priority, and the physical presence test only applies to expats deemed not ordinarily resident in South Africa.
- Any expat who meets the test but has stayed out of South Africa for 330 days in a row stopped being physically present in South Africa on the first of the 330 days.
Giving Up South Africa Tax Residency
If you are a South African working abroad trying to avoid the expat tax, think again.
Financial emigration and harnessing double taxation agreements are touted by many as the best ways to avoid expat tax, but they don’t work.
Financial emigration from South Africa
Financial emigration involves informing SARS and the South Africa Reserve Bank that you are a non-resident and no longer need to follow South African tax rules or exchange controls.
SARS no longer accepts financial emigration as a method of breaking tax residency.
A SARS tax clearance letter and certificate of good standing from the reserve bank are time-consuming and costly attempts to avoid tax that does not work.
If expats thought more about financial emigration, they would realise that asking SARS for a tax clearance letter tells them that the expat is planning to avoid tax and merits closer attention from a tax inspector.
Double taxation agreements
Double taxation agreements (DTAs) are arrangements between countries that give one taxation rights over a business or individual.
In common with most other nations, South Africa has DTAs with many countries.
Typically, tax returns are filed in each country, and the authority is given precedence and issues a certificate of tax paid that is filed with the second authority. The second authority then investigates the claim for relief. The investigation looks at an expat’s tax residency.
Not every country has a DTA with South Africa; even if they do, the terms may not suit expats.
Drawbacks include the terms vary between agreements, and expats must apply for the relief each year.
South African Expat Tax And Retirement Savings
Scrapping financial emigration in March 2021 led to the government reviewing expats’ access to pensions and other retirement savings.
Until then, South Africans could typically access pensions and annuities from 55 years old or when becoming non-resident.
The new rules lock in access to pension savings for three years after non-residency officially starts.
That means expats must prove that neither of the two residency tests (ordinary and physical presence) apply for three years after leaving South Africa.
For example, expats declared non-resident on January 1, 2023, cannot access their pensions until January 1, 2027.
South Africa Expat Tax And Capital Gains
Tax law dictates that anyone divesting South African residency is considered as disposing of their in-country moveable assets simultaneously.
Moveable assets include shares, investments, gold, art or antiques. The definition does not include a home, buildings, land or other immovable property.
Any expat planning to become non-resident needs to have enough cash to cover the capital gains tax (CGT) bill or risk financial penalties.
Avoiding the South African Expat Tax
It’s easy to see from the explanation of how SARS expat tax works that the only way to avoid paying tax on worldwide earnings in South Africa is to become a non-resident.
However, a simple declaration does not suffice for SARS.
Becoming a non-resident triggers residence, tax and legal consequences in South Africa and abroad. The procedures also consume time and can cost considerable sums, especially if expats hire professional tax advisers to do the job for them.
It’s worth analysing how much claiming non-residence will be and if the exercise is cost-effective.
And remember, if invoking a double taxation agreement, the time and costs involved need spending every year.
SARS tax opinions are issued by a SARS-registered professional, who is likely to charge from R350 an hour.
Telling SARS You Are Not A Tax Resident In South Africa
Although it’s tempting to pack a bag and shoot off abroad, don’t forget to tell SARS you are going.
To notify you are no longer resident in South Africa, file a Registration, Amendments And Verification Form (RAV01) on eFiling. Include the date on which tax residence ceased under the Income Tax Liability Details section.
SARS has a long list of requirements for expats declaring non-residency depending on the route taken.
Everyone needs to:
- Complete and sign the Form RAV01
- To write a letter setting out the evidence to support the non-residency claim
- Attach a passport and travel diary
More information is required for each non-residency pathway:
1. Ordinarily resident test
- The visa type you are staying on in the foreign country
- Proof of address abroad
- A certificate of tax residence from the foreign revenue authority or a letter from the authority showing you are regarded as a tax resident in that country
- Details of any property you may have in South Africa and how the property is used.
- Details of any business interests you retain in South Africa.
- Details of your family, explaining if they are in South Africa, and if so, why
- Details of your social network, such as gym membership, recreational clubs and societies
- Where you keep your personal belongings
- Details of any visits to South Africa
2. Physical presence test
3. No extra documentation is required
4. Double taxation agreement
- A certificate confirming tax residence in your new home country
South Africa Expat Tax Law FAQ
Below are a collection of some of the popular frequently asked questions about the South African Expat Tax Law.
SARS expat tax is charged at normal income tax rates, which are for 2024:
R1.25 million – R1.817 million = 41%
More than R1.817 million = 45%
SARS is the South African Revenue Service, while SARB is the South Africa Reserve Bank.
Salaried workers, contractors and the self-employed can earn R1.25 million in a tax year before paying the SARS expat tax.
Becoming non-resident only means tax is not paid on foreign earnings. SARS can still levy tax on income earned within South Africa, such as rent from property or interest on savings.
Where expats keep their cash does not affect their tax liability, and opening an offshore bank account is likely to generate more cost than it is worth.
A double taxation agreement is an arrangement between two countries about splitting the tax paid by someone liable to pay tax in both. The idea is that tax is only paid once on the same amount.
The South Africa Revenue Service keeps an up-to-date list and copies of DTAs online
You can legally avoid the SARS expat tax by becoming a non-resident for tax in South Africa – but this only moves the problem to where you are living your new life.
SARS expat tax is due regardless of whether you pay tax in the country where you live and work. For example, the United Arab Emirates has no income tax, but South Africa expats must declare their earnings to SARS and pay tax on any amount over R1.25 million.
The easiest way to avoid the SARS expat tax is to persuade the tax authority you are no longer a South African resident.
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