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Where you live is not always the place where you pay your taxes, especially if you are a South African expat.
Tax residence is not a decision an individual can make by shouting ‘I’m an expat, get me out of here!’
Deciding where you pay your taxes is an arcane process that involves counting the days you have spent in country over the past five years or so and investigating your social and financial ties to test if you have really gone or are just saying so to avoid paying your dues.
To make the decision even more complicated, where you live and work outside South Africa also have a tax call on your cash and the terms of a double taxation agreement come into play.
Confused? Hopefully this iExpats tax toolkit for South African expats answers your questions.
When do expats pay tax in South Africa?
Let’s look at what residence means for expats.
Someone who is ordinarily resident or who meets the requirements of the physical presence test is a tax resident.
This includes someone who lives in another country but intends to return to South Africa when they have finished their time abroad.
But someone who is tax resident in another country cannot be tax resident in South Africa at the same time even if they are ordinarily resident in South Africa or meet the physical presence test.
Who is ordinarily resident?
Unhelpfully, there’s no legal definition of ordinarily resident. The rules have roots in cases that have come before the courts over the past 75 years.
These are the main points:
- If a South African lives in another country but intends to return to South Africa and considers the country home, then they are ordinarily resident in South Africa
- The decision over where someone is ordinarily residence is not a single year snapshot of their life, but considers a longer period of at least five or six years
Social and financial factors also come into play, like:
- Do they need a work permit, visas or permanent residence while abroad?
- Where does close family live?
- Do they keep money, investments and property in South Africa?
SARS tax guide for non-residents
What is the physical presence test?
The physical presence test counts the days someone has spent in South Africa over recent tax years.
To meet the physical presence test and be considered ordinarily resident, someone must answer yes to each of these questions for the tax year SARS is assessing:
- Were 91 days or more spent in South Africa during the tax year?
- Were 91 days or more spent in South Africa in each of the five tax years before the tax year under assessment?
- Were 915 days or more spent in South Africa during the five tax years before the tax year under assessment?
To meet the test, in practice someone must spend an average 183 days in South Africa for six tax years in a row to become ordinarily resident.
There is a get-out clause for the physical presence test.
What is the 330-day rues for expats?
If an expat spends 330 consecutive days outside South Africa, they are classed as non-resident from the last day they met the test.
Counting the days shows why expats should keep a reliable diary that shows where they spend their time in and out of South Africa. SARS will check passports but the responsibility of proving residence falls on the taxpayer.
Expats should also be careful of what they wish for.
Always check out the tax residence qualifications and tax rates of the country where you intend to live and compare the data with tax rates in South Africa as they can vary between countries.
How the ZAR1.25 million exemption works
SARS expat tax rules workhand-in-glove with double taxation agreements with other countries.
The rule-of-thumb about double taxation treaties is they do not affect tax residence nor stop expats paying tax but are a way for countries to decide who gets what first.
The examples assume an expat who is aged 45 earns ZAR3 million a year and is ordinarily resident in South Africa
- Zero tax countries –If the expat works in the United Arab Emirates.
As the UAE has no income tax, no local taxes are deducted from the ZAR3 million.
In South Africa, the expat tax exemption is applied (ZAR3 million – ZAR1.25 million) leaving a taxable amount of ZAR1.75 million, which is taxed at a rate of 45% (ZAR787,500), leaving the expat with ZAR962,500 net.
- Higher tax rate countries– If the expat worked in another country, say the UK, where the tax rate is comparable with or higher than South Africa, then the ZAR3 million would be taxed at UK rates (ZAR925,000).
In South Africa, the tax calculation stays the same (ZAR787,500 tax) but a double taxation agreement comes into play giving the expat a tax credit equal to the tax paid in the UK
- Lower tax rate countries– If the expat works in a country where the tax rate is higher than zero but less than the tax rate in South Africa, say 25%, then the ZAR3 million is taxed locally (ZAR750,000).
In South Africa, the tax calculation stays the same again (ZAR787,500) but the expat must hand over a balancing payment of ZAR37,500 – the difference between foreign tax paid and South African tax due on the ZAR3 million.
If an expat works in South Africa for part of a tax year and abroad for another part, the ZAR1.25 million exemption only applies to income from outside the country.
VDP: Telling SARS late about expat income
If you are late telling SARS that you an expat because you are worried you cannot afford to settle your tax account, then you should consider the Voluntary Disclosure Programme (VDP).
SARS is encouraging expats to take this route and offering reduced penalties in return.
It’s not too late to take part in the scheme providing SARS is not already auditing your finances or a criminal investigation is underway.
Sometimes, fraud or tax evasion is discovered during the VDP inquiry, but in most cases, SARS will promise:
- Not to prosecute and tax offence arising from the VDP
- Will discountunderstatement penalties
- Will waive any administrative penalties except for late filing charges
At the end of the VDP process, you will have a clean slate for your tax affairs and no more worries about investigations and penalties.
Making a VDP disclosure
The VDP process comes with a list of rules about how to make the disclosure:
- The application must be voluntary
- The tax issue must have happened within five years of the application date
- The taxpayer must make a full and honest declaration
- The taxpayer must have understated the tax they should pay when filing a tax return
- The VDP should not result in a tax refund
- The application must be made through the correct channels and on the correct forms
The VDP agreement
A successful VDP application leads to an agreement between the taxpayers and SARS over the amount of any penalties and how any tax due should be paid.
Failing to keep to the terms of the agreement could lead to SARS cancelling the deal or withdrawing any penalty discounts. Breaking the agreement could also trigger prosecution for any tax offences disclosed during the VDP process.
Why consider VDP?
Since 2018, South Africa has taken part in the Common Reporting Standard.
The CRS is a global network of tax authorities that swap tax data with each other. Basically, if you are listed as ordinarily resident in South Africa and have bank accounts, savings or investments with a financial institution in another country, the tax authority there will tell SARS.
That means if you have understated your tax in South Africa, then SARS knows and sooner or later you will get a nudge letter asking if you have completed your filing in full for a tax year.
What SARS is really saying is ‘we know what you are doing and it’s time to fess up.’
How do they know – your foreign bank tells them you are a South African controlling an account in another country and the information is cross-checked against your tax filings.
A word of warning
Residence, cross-border tax and voluntary disclosures are complicated tax topics best discussed with a professional adviser with experience in the field.
If your tax affairs are in a mess, don’t bury your head in the sand because SARS will catch up eventually. It’s much better to take responsibility and sort out the muddle.
And don’t do it yourself – SARS will tie you in knots and you could make decisions that worsen your situation.
Related Information
Below is a list of related articles you may find of interest.
- Financial Advice in Dubai
- Buying a Property in Dubai for Expats
- South Africa Expats Sleepwalking Into Tax Problems
FAQs
What is SARS VDP? ›
The South African Revenue Service (SARS), in terms of the Tax Administration Act No. 28 of 2011, has made provision for the Voluntary Disclosure Programme (VDP) to be permanently available to a qualifying individual, company or trust that seeks to voluntarily disclose and regularise their tax affairs.
How does expat tax work in South Africa? ›South African “expat tax” exemption
25 million earned as foreign income is exempt from tax and an “expat tax” will be charged on any income earned above this. However: You must have spent more than 183 days outside South Africa in any 12-month period and.
THE NEW LEGISLATION STATES:
The amendment requires South African tax residents abroad to pay South African tax of up to 45% of their foreign employment income which exceeds the threshold of R1. 25 million.
South Africa has a residence-based tax system, which means residents are, subject to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned. By contrast, non-residents are taxed on their income from a South African source.
How does a VDP work? ›VDP software synthesizes available customer data to personalize direct mailers, whether that's simply including the customer's name in the text or creating entire targeted marketing campaigns based on the customer's profile.
What is required for VDP application? ›- Be voluntary.
- Be complete.
- Income Tax Disclosures must involve the application or potential application of a penalty.
- Income Tax Disclosures must include at least one year of past-due income tax.
- GST / HST disclosure must the application or potential application of a penalty or interest.
The only way to avoid paying tax to SARS on your worldwide income is to show them that you are no longer a tax resident.
Is there a tax treaty between South Africa and USA? ›Currently, there is no income tax convention between the United States and South Africa. The income tax convention between the United States and South Africa of December 13, 1946 was terminated July 1, 1987, pursuant to the terms of that convention and Section 313 of the Comprehensive Anti-Apartheid Act of 1986.
How many days do you need to be out of South Africa to not pay tax? ›Breaking tax residence
An individual, who is resident by virtue of the physical presence test, ceases to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days.
An individual, who is resident by virtue of the physical presence test, ceases to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days. The individual will be deemed to have ceased to be a resident from the day such person left South Africa.
Who is exempt from paying tax in South Africa? ›
Interest exemptions
Interest from a South African source, earned by any natural person under 65 years of age, up to R23 800 per annum, and persons 65 and older, up to R34 500 per annum, is exempt from income tax.
- Playing the long game with retirement savings. You can provide for your retirement and be tax-savvy at the same time. ...
- Let your medical aid contribute to your tax return. ...
- Charity is tax-deductible. ...
- Working from your home office.
If not ordinarily resident in South Africa, an individual is considered a South African resident if the individual is physically present in South Africa for more than 91 days, in aggregate, in the relevant tax year and each of the preceding five tax years, and also for more than 915 days, in aggregate, in the preceding ...
What happens if you don't pay tax in South Africa? ›Administrative penalties recur each month that the taxpayer is non-compliant, up to a maximum of 35 months. Each recurring penalty will have a unique transaction number. Note: The Penalty Statement of Account (APSA) will no longer be sent with the penalty assessment notice.
What is South Africa tax exit? ›Exit tax when you leave South Africa
Capital Gains Tax (CGT) is a tax you pay whenever you make a profit from selling something you own. When you declare yourself non-tax resident, you're deemed to have sold your assets (excluding immovable property situated in South Africa and your RA) to your foreign self.
The VDP is a great way to fly a stabilized approach from MDA to the runway, but it's not a legal requirement for going missed.
What is the penalty for IRS Voluntary Disclosure Program? ›Under the updated IRS Voluntary Disclosure procedures the taxpayer does not have a set penalty. Rather, the IRS agent will follow the rules of the IRM (Internal Revenue Manual). Under the IRM, a person is (generally) subject to a 50% penalty on the highest year's unreported balance.
How long does a VDP take to process? ›Partly on account of the backlog created by this influx of submissions, CRA's turnaround time for resolving VDP applications under the new rules is now approximately 350 days on average.
How do I submit a VDP? ›To apply to the VDP, it is best to use Form RC199, Voluntary Disclosures Program (VDP) Application. However, if you prefer, you can send a letter with the same information requested on the form.
What is VDP in home? ›A video door phone (VDP) enables you to see your visitors remotely before opening doors, thus preventing surprise attacks or criminal activity. Working as an electronic 'peephole,' a VDP is a popular security option for homes, hostels and business offices.
How does VDP ensure security? ›
With a VDP in place, companies can receive and track bug submissions, analyze reports efficiently, and engage in transparent communication with ethical hackers and security researchers. This makes it easier to manage security incidents and improves overall safety for users.
Do American expats pay US taxes? ›Do expats pay taxes? Yes, you file a U.S. tax return if you're a U.S. citizen and make over the general income threshold — regardless if you live abroad or Stateside.
Is an expat still a US citizen? ›You became at birth a U.S. citizen and a citizen of another country and, as of the expatriation date, you continue to be a citizen of, and are taxed as a resident of, that other country.
Do American expats still pay taxes? ›Most American Expats Do Not Owe US Taxes
While virtually all expats are required to file a US tax return, most Americans do not owe US expat taxes. The US has put several necessary deductions, exclusions, and credits in place to ensure Americans living abroad aren't taxed twice on the same income.
If you are resident in two countries at the same time or are resident in a country that taxes your worldwide income, and you have income and gains from another (and that country taxes that income on the basis that it is sourced in that country) you may be liable to tax on the same income in both countries.
Can you be a taxpayer in two countries? ›Migrants. It is possible to be resident for tax purposes in more than one country at the same time. This is known as dual residence.
Can two countries tax the same income? ›Double taxation can also be legal, which means that two countries would consider that a single person is a tax resident. Therefore, taxes on income are imposed by one country, after the same income has already been taxed by another country.
What happens if you don't file taxes for 5 years in South Africa? ›The administrative penalty for filing a return late is a fixed amount penalty based on a taxpayer's taxable income. It can range from R250 up to a whopping R16 000 a month for each month that the non-compliance continues.
How much money can I transfer to South Africa? ›4. How much money can I transfer into South Africa? While there are several limits on sending money out of South Africa, there are no limits as to how much money you can send into South Africa.
How long can a permanent resident stay outside South Africa? ›While your permanent resident status does not expire and remains valid indefinitely, you must not stay outside South Africa for more than three years at a time. Home Affairs may withdraw your status if you leave South Africa for three years or longer.
How do I claim VAT back when leaving South Africa? ›
The application for a refund must be lodged with the VAT Refund Administrator's offices. These offices are situated at Johannesburg, King Shaka and Cape Town International Airports, various land border posts and designated commercial harbours.
How much money can a South African resident take out of the country? ›A traveller leaving South Africa must declare currency in his/her possession. The South African bank notes is unlimited if the traveller is traveling within the Common Monetary Area (CMA). Traveller must have prior authorisation from SARB to travel with any amount exceeding R25 000 allowance.
How do I remove myself from SARS? ›Use the deregistration function on eFiling; Send a written notification and EMP123/EMP123T form to SARS. You can send the notification and form via email, post or fax to the region where the entity is registered.
How do I claim tax back from SARS? ›You must request an eSTT refund by completing Part A of the REV1600 form by emailing it to the following email address: lbqueries@sars.gov.za.
How much is taxable income in South Africa? ›| Taxable income (R) | Rates of tax (R) |
|---|---|
| 1 – 195 850 | 18% of taxable income |
| 195 851 – 305 850 | 35 253 + 26% of taxable income above 195 850 |
| 305 851 – 423 300 | 63 853 + 31% of taxable income above 305 850 |
| 423 301 – 555 600 | 100 263 + 36% of taxable income above 423 300 |
You must pay South African taxes if you work in South Africa or own a South African business. The amount you'll pay depends on certain factors, such as whether you are a resident or non-resident.
Why is it important to pay tax in SA? ›The Income Tax you pay enables the Government to meet the social and economic needs of our country and its people, ensuring a better life for everyone.
How does the government know if you don't pay taxes? ›In order to convict you of a tax crime, the IRS does not have to prove the exact amount you owe. But such charges most often come after the agency conducts an audit of your income and financial situation. Sometimes they're filed after a tax collector detects evasion or fraud.
What is the new expat tax law in South Africa? ›THE NEW LEGISLATION STATES:
The amendment requires South African tax residents abroad to pay South African tax of up to 45% of their foreign employment income which exceeds the threshold of R1. 25 million.
The short answer is yes: foreign income is taxable in South Africa. The South African tax system states that if you're a South African resident (for tax purposes), you will be taxed on all local and foreign income you receive, regardless of where it is paid and where the source of the income is.
How do I know if I must submit a tax return South Africa? ›
If you are registered for income tax, you will be required to submit an annual income tax return to SARS based on the Gazette. See the Tax Tables.
How do I know if I owe SARS money? ›Request a balance statement and/or statement of account for Personal Income Tax by sending an SMS to SARS on 47277. This service can be accessed with or without data/airtime.
Can SARS freeze your bank account? ›In terms of the Tax Administration Act (TAA), SARS can only freeze the money in your account if it has notified you that you owe it money and that it is making a final demand. It has to give you ten days after the final letter of demand before it can appoint your bank (as a third party) to collect the tax.
How can I avoid exit tax? ›In order to even be subject to the IRS covered expatriate and exit tax rules, a person must be a U.S citizen or long-term legal permanent resident. Therefore, the easiest way to avoid the long-term resident exit tax trap it is to simply avoid becoming a legal permanent resident.
What triggers exit tax? ›If you are a US citizen and you decide to renounce your US citizenship this can still have substantial tax implications to you. The US imposes an 'Exit Tax' when you renounce your citizenship if you meet certain criteria. Generally, if you have a net worth in excess of $2 million the exit tax will apply to you.
Do you have to pay taxes after you retire in South Africa? ›As indicated above, the two thirds of the retirement interest from a pension, pension preservation or retirement annuity fund is received in the form of an annuity (a regular pension). If the income from your annuity exceeds the tax threshold, tax is payable on the amount.
What does SARS due to you mean? ›If your tax account says due to you it means that SARS owes you a refund for a tax return that you submitted, seeing as it's not been long, SARS should refund you within 7 days from the day you received this notification.
What are the reasons for Voluntary Disclosure? ›Voluntary disclosure benefits investors, companies and the economy; for example, it helps investors make better capital allocation decisions and lowers firms' cost of capital, the latter of which also benefits the general economy. It may also reduce conflicts of interest in widely held firms.
What is VDP tax relief? ›VOLUNTARY DISCLOSURE RELIEF
SARS allows taxpayers to avoid criminal prosecution and regularise their tax affairs by making a disclosure under the VDP. A successful VDP application allows for an applicant to receive waiver of penalties and to settle outstanding tax liabilities with SARS.
HOW LONG DOES IT TAKE TO PROCESS A VDP APPLICATION? SARS is inundated with VDP applications and the current average turnaround time of a VDP application, according to SARS, is 201 working days.
What triggers SARS verification? ›
Any taxpayer can be selected by SARS for an audit for the purpose of proper administration of tax, including on a risk basis. Taxpayers may also be selected for audit on a random or risk basis.
How do I know when SARS will pay me? ›If a refund is due, then there is nothing more you have to do– you can log out of eFiling or MobiApp and wait for the refund, which you can expect within approximately seventy-two (72) hours, provided your banking details with SARS are correct.
What are the disadvantages of voluntary disclosure? ›Disadvantages include financial loss, potential reputation harm, no immunity from liability or prior commitments by government, and possible penalties for conduct that may have remained undiscovered and thus undisclosed.
Can I refuse financial disclosure? ›It is not recommended that you refuse to disclose standard financial information as the court in financial court proceedings can order you to complete your Form E and refusal is likely to lead to further delays in the court process.
How many years can you get for voluntary disclosure? ›The CRA voluntary disclosure program (VDP) only applies to the last 10 years of tax issues such as unfiled tax returns or unreported income or offshore assets not reported on a form T1135.
Does VDP waive interest? ›Late returns that show a balance owing trigger penalties for being late, plus interest. The Voluntary Disclosure Program (VDP) is a program under which the Canada Revenue Agency will accept late filed returns forgive the penalties and part of the interest.
What is the meaning of Voluntary Disclosure? ›Voluntary disclosure is financial or operating information related to an issuer's obligations, credit, or operating conditions that an issuer chooses to provide in addition to information required by the issuer's Continuing Disclosure Agreements.
What is voluntary collection of use tax? ›The California Department of Tax and Fee Administration (CDTFA) encourages businesses to voluntarily register and pay use tax obligations due to the State of California. The Voluntary Disclosure Program provides incentives for unregistered out-of-state companies to satisfy their use tax obligations.
Can you descend prior to VDP? ›If a VDP is available, it will be indicated by a "v" on the profile view portion of the instrument approach procedure chart. Do not descend below MDA before reaching the VDP.