TwitterLinkedInFacebookWhatsAppReddit
Estimated reading time: 14 minutes
South Africa expat tax is the new way tax is charged by the South African Revenue Service on income earned outside the country. You can find out below what it means to you when you plan your finances and work out how much tax you are likely to pay
Table of contents
- South African SARS Expat Tax Explained
- Interaction with the Common Reporting Standard
- Interaction with South Africa’s double taxation agreements
- What is a ‘physical presence’ in South Africa?
- SARS Physical Presence Test Diagram
- What does South African ‘ordinarily resident’ mean?
- Are you really a South African Expat?
- Who is impacted by the new South African tax?
- What options do South African expats have?
- Many will have limited options:
- Rebalancing income with employment benefits
- Other South African taxes expats must pay
- What about financial emigration out of South Africa?
South Africa is switching to a new way of working out income tax for expats which means they could pay tax on money that they earn abroad and never send home.The impending tax is due to start from March 1, 2020 and is already causing consternation for thousands of South Africans living and working overseas.
Expats in zero-tax economies, such as Dubai or Abu Dhabi, will feel the brunt of the law change as they will pay tax in South Africa on income earned, invested or saved even if they never set foot in their homeland but are judged ordinarily resident.
South African SARS Expat Tax Explained
South Africa’s SARS, South African Revenue Service, has introduced new rules about the reform of the foreign employment income tax exemption for South African residents overseas, which is often called ‘expat tax’ for short.
This guide takes an in-depth look at the timeline of the new tax rules and how they are designed to work.
The change is all part of the shift in South African from taxing income sourced in the country to taxing income earned worldwide by residents.
Those paying the tax are tested as ‘physically present’ or ‘ordinarily resident’ in the country.
The new rules drop the traditional expat tax exemption that was designed to stop South Africans paying income tax on their earnings at home if they were abroad for 183 days in any 12-month period, which must include a continuous absence of 60 days or more.
In Budget 2017, then finance minister Pravin Gordhan announced the abolition of the expat exemption from March 2019.
In Budget 2018, finance minister Malusi Gigaba confirmed the start date again, but public protest made him make the new rules subject to expats earning ZAR1 million or more – equivalent to US$55,600/GB£44,866 or AED204,100.
Income tax is payable on earnings of over ZAR1 million at rates of up to 45%.
In March 2019, another new finance minister at the Treasury, Tito Mboweni, again confirmed the new expat tax rules will start from March 2020 and that the government had no intention of ditching the legislation.
He did announce a public workshop to discuss some of the issues which led to a last minute change of heart about the earnings threshold before expats started to pay tax.
Mboweni decided in his Budget 2020, relating to the Income Tax Act, that expat tax rules were encouraging too many high-earning South Africans to leave the country to avoid the tax, so he relaxed the threshold from ZAR 1 million to ZAR 1.25 million (US$69,500/GB£56,000/AED255,135).
Another bombshell from Mboweni was the suggestion that financial emigration will be scrapped from March 2021 to stop the exodus of South Africans fleeing abroad to escape expat tax.
Interaction with the Common Reporting Standard
At the same time as announcing the new south african tax, like many other nations, South Africa launched a chance for taxpayers to come clean over undisclosed wealth while waiting for the Common Reporting Standard (CRS) to kick in with an amnesty.
CRS is a data-swapping network of the tax authorities of more than 100 countries. Each authority compiles a list of accounts and investments controlled by foreign nationals and sends the details to the expat’s home nation tax authority for comparison with their tax filings.
In return, other authorities in the network send financial data on expats back.
The CRS network is now up and running, so the South African Revenue Service (SARS) is already collecting information about the financial affairs of expats to cross-check against their tax returns.
The result is if the expat fails to disclose income, SARS will have data from elsewhere indicating possible tax avoidance.
Interaction with South Africa’s double taxation agreements
South Africa has double taxation agreements (DTAs) with more than 80 other nations.
The DTAs are agreements between South Africa and another country over who has the right to tax your income and gains.
The aim is to ensure expats are not taxed on the same income twice, although they may have to make a balancing payment if tax rates differ between each nation.
Under the new rules, SARS has stipulated any earnings by ordinary residents will be taxed in South Africa along with any foreign earnings.
SARS list of double taxation agreements
What is a ‘physical presence’ in South Africa?
The ‘physical presence’ test determines if someone is tax resident in South Africa by checking the number of days they spend in the country.
The test is in three parts. Someone must fail to meet the date limits in each part to prove non-residency for tax – the tests are:
- Did someone spend 91 days or more in South Africa during the tax year in question?
- Did someone spend 91 days or more in South Africa in each of the five tax years prior to the tax year in question?
- Did someone spend 915 days or more in South Africa during the five tax years before the tax year in question?
Anyone who meets one or more of the tests but who stays out of South Africa for 330 days or more is a non-resident from the last day they qualified as physically present.
Everyone else is taxed on their worldwide income and gains in South Africa.
To beat the physical presence test, expats should log the times and dates when they enter and leave South Africa to accurately record if they were physically present in the country – noting the time limits apply to full days, not part days.
SARS Physical Presence Test Diagram
The diagram can be found in the SARS document here
What does South African ‘ordinarily resident’ mean?
South African tax law determines non-residents are only taxed on their income from a source within the country.
The legal term ‘ordinarily resident’ is not defined in law, but a string of court cases over the years have shaped the legal meaning.
The lead case is Cohen v the Commissioner for Inland Revenue, dating back to 1946.
The case established that a person was ordinarily resident regardless of the time they spent away from South Africa if they still regarded the country as home and the place to where they would eventually return.
A briefing note issued by the government lays out the Cohen case and other important residence cases decided in the courts.
Issues that affect residence can include if someone owns a home in South Africa, has family and social ties to the country, repeatedly visits the country, holds a South African passport or owns a bank account.
Read more about court cases determining ordinarily residence
Are you really a South African Expat?
Like expats from other countries, South Africans abroad cannot decide they are non-resident at home and now resident in another country.
Non-residence is a matter of fact and law and the physical presence and ordinarily resident tests decide the issue for them.
That means expats can live in another country but still be ordinarily resident in South Africa if they have not taken care to break all ties with their homeland, leaving the expat open to receiving an unexpected tax bill.
The government reckons just over 900,000 South Africans live abroad, but only 103,000 can show they are non-resident in South Africa. That leaves nearly 800,000 South African expats facing tax bills when the new laws take effect from March 2020.
And if they are non-resident, any return to South Africa within five years of leaving can class them as failed emigrants and leave them open to financial penalties.
“An individual will be considered to be ordinarily resident in South Africa, if South Africa is the country to which that individual will naturally and as a matter of course return after his or her wanderings,” says guidance from SARS.
“It could be described as that individual’s usual or principal residence, or his or her real home. If an individual is not ordinarily resident in South Africa, he or she may still meet the requirements of the physical presence test and will be deemed to be a resident for tax purposes.”
SARS tax guidance for non-residents with income or investments in South Africa
Who is impacted by the new South African tax?
Any South African abroad earning ZAR 1.25 million or more from any source will fall into the South African tax SARS net.
Double taxation treaties may protect expats paying tax at an equal or higher rate than in South Africa, but anyone else should expect a bill from SARS.
Companies sending workers abroad on assignment will have to consider how the tax will affect them.
Gross earnings will not only cover salaries, but benefits like accommodation, cars, school fees and trips home as well.
Those in the Gulf States who pick up a tax-free gratuity at the end of their contracts will find they have tax to pay on these lump-sums as well. If you live in Dubai you will need financial advice.
The concern is employers at home and abroad will pick up the tab for expat workers by increasing salaries and benefit packages to cover the new tax, pricing South African workers out of overseas assignments.
What options do South African expats have?
The CRS is a major problem for expats as they have no choice other than to honestly file tax returns knowing that their affairs are open to scrutiny as banks and financial services organisations will disclose the details to the tax authorities.
Many will have limited options:
- Accept the tax reducing their net incomes
- Return to South Africa
- Become a financial migrant
- Looking for tax planning opportunities to reduce liabilities
Financial solutions, such as pensions and bonds may defer paying tax for a significant time, but as will all tax planning, the government close the opportunity by changing the law at any time.
Leaving South Africa to become resident elsewhere can lead to other tax implications on assets such as property or investments still in the country.
South African expats who can prove they are tax resident in another country are exempt from the new tax, but will still pay tax on income or gains generated in South Africa.
Another worry for expats is most assignments abroad are paid in US Dollars, a strong currency that has driven down the exchange value of the Rand.
For full information about what options are available download the free South African Expat Tax Guide informing you ofthe steps you can take to be in a better financial position.
Download the free guide by clicking here
Rebalancing income with employment benefits
The outcry over South Africa’s expat tax mainly comes from two types of overseas worker
- Those living in a zero tax or low tax country
- Contract workers with significant earnings from abroad
Up to now, these workers have had no incentive other than to take their income in cash as the tax consequences have never bothered them.
But the expat tax rules are forcing employers and South Africans overseas to review their income packages to switch to more tax effective financial strategies.
SARS talks about ‘adjusting contracts’ to help high-earners rebalance their incomes to minimise their tax burdens.
The point is reviewing and adjusting the way contracts are paid by looking at introducing more employment benefits, such as saving into a pension, will lead to a lower tax bill.
South African expats can benefit from an income tax exemption on foreign pension income, which means on retirement, any income from an overseas pension is tax-free.
The effect is a different way of looking at income as the whole amount won’t be available to spend as a portion will go into savings for retirement, which is really something many expats from other countries have had to do for years.
However, it’s important employers and expats do not come up with tax avoidance schemes that break South African law.
The key ruling says: “Employers and employees are entitled to structure salary packages as it suits them, and they are entitled to do so to achieve maximum tax acceptance… It is accordingly quite lawful for an employee to sacrifice salary in return for some quid pro quo from the employer which has the effect of reducing the employees tax liability”
That means organising finances to pay less tax is OK, providing any action taken is lawful and transparent.
South African expats should review their contracts and terms of employment to make receiving income more tax efficient sooner rather than later – and certainly ahead of the March 1, 2020 deadline.
Other South African taxes expats must pay
Besides the new income tax on earnings, expats also face capital gains tax and estate duties.
Capital gains are complicated to work out because they include an element of currency gain or loss and if several exemptions, allowances or losses are available to offset against any profits.
Taxpayers also have an annual allowance of ZAR40,000.
The tax is charged at rates of from 18% to 40%.
Donations and estate duty are imposed at 20% on the worldwide assets of residents and on South African assets of non-residents.
What about financial emigration out of South Africa?
The formal financial emigration process can trigger as many problems as an expat looks to solve.
If an expat tells SARS that they are filing formal financial emigration notice, the tax authority treats their assets in South Africa as if they are sold at market value, even if they are retaining them.
DARS will then issue a capital gains tax assessment and demand payment.
The trade-off is if SARS investigates your financial emigration notice and finds you are no longer ordinarily resident in South Africa, as an expat you are exempt from paying tax on your income from abroad in South Africa.
Related Information
Below is a list of related articles you may find of interest.
- South Africa Expats To Lose Tax-Free Cash In The UAE
- Is Financial Emigration A Good Tax Strategy For SA Expats?
- South Africa Plans To Scrap Offshore Tax Break For Workers
- Companies Will Suffer Most From South Africa Tax Reform
FAQs
How much tax do expats pay in South Africa? ›
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.
Do I have to pay tax in South Africa if I live abroad? ›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 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.
Most expats will not pay US taxes thanks to the benefits of Foreign Earned Income Exclusion and Foreign Tax Credit. However, expats must file taxes annually if their gross worldwide income exceeds the annual filing threshold. So even if you do not owe any taxes to the IRS, you still may need to file.
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 to avoid tax on foreign income in South Africa? ›It needs to be in a 12-month period - therefore from 15 April 2021 to 14 April 2022, and you'd need to spend 183 days outside SA during this period, with 60 days of these continuous. However, bear in mind that only income earned while you're rendering services outside of SA will be exempt.
How can I avoid paying expat tax? ›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 South Africa good for expats? ›With plenty of sunshine and warm temperatures throughout most of the year, South Africa's pleasant climate makes the country perfect for expats who enjoy being outdoors.
Do expats pay taxes in two countries? ›But for expats, double taxation typically refers to having their income taxed by the US as well as the country they've made their home in. The US is one of only two countries in the world with citizenship-based taxation.
Do US expats file state taxes? ›Do US Expats Pay State Taxes? The answer is yes— If you're living abroad, you might not realize that you're still considered a resident of your home state and are subject to paying state taxes. This includes income tax, property tax, and sales tax.
Which countries are tax free for expats? ›
Key Takeaways. Bermuda, Monaco, the Bahamas, and the United Arab Emirates (UAE) are four countries that do not have personal income taxes. If you renounce your U.S. citizenship, you may end up paying a tax penalty called an expatriation tax.
Do US expats have to pay US taxes? ›Yes. If you are an American expatriate (expat), someone who moved from the U.S. and now lives abroad, you will need to file a U.S. tax return if you earned above the minimum income threshold. These gross income thresholds typically amount to the Standard Deduction amount for your filing status and age.
What income is not taxable 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.
The exemption under section 10(1)(o)(ii) applies to a South African tax resident who is an employee and renders services outside South Africa on behalf of an employer (South African or foreign) for longer than 183 full days in any 12-month period as well as a continuous period exceeding 60 full days outside South ...
Can a foreigner get a tax number in South Africa? ›Registering for a tax number via eFiling
Simply register on efiling and if you do not yet have a personal income tax number, SARS will automatically register you and issue a tax reference number. You are required to have a valid South African ID.
For example, depending on the local country laws, taxpayers could be considered to be doing business if they are merely soliciting sales. Some notable examples of countries for which the U.S. does not currently have an income tax treaty include Brazil, Argentina, Chile, Vietnam and Singapore.
Which countries have double taxation agreement with us? ›...
Tax treaties.
| Australia | Germany | Poland |
|---|---|---|
| Czech Republic | Japan | Sweden |
| Denmark | Luxembourg | Switzerland |
| Finland | Netherlands | United Kingdom |
| France | Norway | Uruguay |
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 are the tax residency rules in South Africa? ›South African courts have held that a taxpayer is ordinarily resident in the country of their most fixed or settled residence, the country to which they would naturally, and as a matter of course, return from their wanderings, or their usual or principal home.
What is South Africa exit tax? ›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.
Who doesn't pay tax in South Africa? ›
Who is exempt from income tax in South Africa? Generally, if you earn less than R83,100 annually (less than R128,650 if you're older than 65, or less than R143,850 if you're over 75), you don't have to pay income tax.
How to financially emigrate South Africa? ›- Fill out an MP336 form. ...
- Apply for an emigration tax clearance certificate. ...
- Submit the application to the SARB. ...
- Access your SA retirement annuities early. ...
- Transfer of SA inheritance funds. ...
- Full tax compliance.
An employee who is a tax resident in South Africa must be outside South Africa for a period or periods exceeding 183 full days (in aggregate) during any 12-month period, and a continuous period exceeding 60 full days during that 12-month period.
How many expats return to South Africa? ›How many expats have returned home over the last few years? 359,000 South Africans have returned in the past five years.
Can US citizens move to South Africa? ›A temporary residence permit allows those moving to South Africa the right to live and work in the country for up to three years, during which time they can apply for a permanent residence permit.
How long can a US citizen stay in South Africa? ›U.S. citizens (U.S. passport holders) visiting the Republic of South Africa for ninety (90) days or less for tourism / business purposes do not need visas.
Is it safe for Americans to live in South Africa? ›Although South Africa is not the most dangerous place in the world, it is not that safe to visit. The country has very high crime rates. Besides theft, these crime rates include violent crimes such as kidnapping, assault, rape, and even murder. Foreigners are not immune from these threats.
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.
How much foreign income is tax free in USA? ›The maximum foreign earned income exclusion amount is adjusted annually for inflation. For tax year2021, the maximum foreign earned income exclusion is the lesser of the foreign income earned or $108,700 per qualifying person. For tax year2022, the maximum exclusion is $112,000 per person.
How can I avoid double taxation in USA? ›There are various ways to mitigate corporate double taxation, such as legislation, structuring an organization into a sole proprietorship, parentship, or LLC, avoiding the payment of dividends, and shareholders becoming employees of the businesses they own.
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.
The tax rate for the year 2022 in South Africa for companies is 27% until March 2023. After that, it will be raised to 28%. For individuals and sole proprietors, the threshold is R91 250, if you are younger than 65 years.
How much income tax do you pay 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 |
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 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.
Does everyone pay income tax in South Africa? ›Generally, if you earn less than R83,100 annually (less than R128,650 if you're older than 65, or less than R143,850 if you're over 75), you don't have to pay income tax.
Does everyone pay tax in South Africa? ›We explain the South African tax system, local tax rates, filing tax returns, and VAT. 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.
How do I know I have to pay tax in South Africa? ›R87 300 if you are younger than 65 years. If you are 65 years of age to below 75 years, the tax threshold (i.e. the amount above which income tax becomes payable) is R135 150. For taxpayers aged 75 years and older, this threshold is R151 100.
Are taxes high in South Africa? ›Using the OECD's latest comparative tax tables for 2021, South Africa's average tax rate comes in on the lower end compared to partner nations – with the OECD average sitting at 24.5%. Like many nations, South Africa has a progressive tax system where the more you earn, the more tax you pay.
What are the monthly tax brackets in South Africa? ›As you can see from the tax table (which applies to the 2022/23 tax year), the brackets are 18%, 26%, 31%, 36%, 39%, 41% and 45%. If, say, you fall into the 36% bracket, you are not paying 36% on all your income; you are paying 36% only on anything you receive above R488 700.
What is a good salary in South Africa? ›
The national average monthly salary in South Africa ranges from a minimum wage of 7,880 ZAR per month (USD 511) to a maximum average salary of 139,000 ZAR per month (USD 9007.) However, the actual maximum salary can be higher based on an employee's experience, educational qualification, etc.