- You are automatically “tax-exempt” if there is a DTA in place between SA and the country you are working in?
- Having a residence permit of a host country is your golden ticket to avoid expat tax
- DTA automatically applies, i.e. you don’t have to claim for a DTA?
- Nor do you have to file a tax return in SA?
The above misconceptions can land you in hot water with SARS.
In short, a Double tax Agreement or “DTA” means the door is kept open to South Africa. Financial Emigration on the other hand means you break tax residency with South Africa.
Financial Emigration is the formal process to note oneself as a non-resident for tax and exchange control purposes in South Africa. Undergoing the Financial Emigration process, proves one’s intention to permanently reside outside of South Africa which coincides with South African tax residency tests.
Our team of Tax Specialists have helped thousands of South Africans abroad ensure full compliance and assist in correctly applying a Double Taxation Agreement (DTA).
Double Taxation Agreements (“DTA”) are internationally agreed legislation between South Africa and another country. South Africa holds dozens of such agreements with various countries. The main purpose of a DTA is to ensure that each country subject to the agreement knows what taxing rights they hold against taxpayers.
A DTA ensures that you are not unfairly taxed in both South Africa and the corresponding country dealt with in any specific DTA. It thus provides a defence to double taxation and sets out various requirements you must meet to understand if you are classified as a tax resident.
If you are classified as a tax resident, in terms of the DTA, you will be obligated to pay certain types of taxes on income received.
A DTA becomes relevant to your circumstances if you are earning an income for instance in South Africa as well as abroad, or if you are a tax resident of South Africa (but have no income from a South African source) and you are earning income from a foreign source.
This type of situation often gives rise to a grey area as to whether or not you can or should be taxed, especially taking into account that a South African tax resident would be subject to tax in South Africa on their worldwide income.
Thus, many South Africans living and working abroad may need to consider what their tax treatment legally should be when taking into account the DTA between South Africa and the country they are now residing in. There is the possibility that you may need to pay tax on your foreign income in South Africa and utilising a DTA is one of your options to ensure this does not happen.