We have extensive clients who are internationally mobile employees, who engage us on personal basis, as opposed to the employer engaging us for expatriate tax services. Where there is not an employer involved with the proactive planning, the tax outcome cannot be predicted. The tax cost is also significant where the planning is not done correctly.
Background
South Africa moved from a source base system of taxation to a residency basis of taxation some 10 years ago. This means that South African residents have to disclose their world-wide income in their personal income tax submissions. The most common misconceptions in the market hereon are that (a) because an employee has left South Africa, they are no longer required to file a tax return (b) because the employee has left South Africa, they can submit a zero tax filing (c) that there is an automatic tax de-registration where an employee leaves South Africa and that you become “non-resident” as a matter of course (d) that the exemption for income applies to all income, including investment income and income earned whilst working in South Africa (e) that the offshore employment income and benefits need not be disclosed (f) that there is not active enforcement by SARS hereon. The reality is that this is a critical area of compliance focus for the South African Revenue Service and that many South Africans working abroad find out the hard way that the tax position cannot be ignored. The best position is to remain fully compliant with South African tax law.
Our Services
We effectively provide a full compliance service for South African employees working outside South Africa. The cost effective delivery of this service means that we adopt a structured approach only, thus we are assured that first-time accurate guidance is provided and that a compliant position is achieved at reasonable cost. Our approach on new engagements –
South African Tax Status
South Africans who work abroad should first consider whether they are still regarded as tax resident in South Africa. See Residency Test.
It is important to still ensure that your tax returns are accurately completed. If not, you may find it difficult to answer all the South African Revenue Service questions to their satisfaction when you return to South Africa one day and start submitting normal income tax returns.
South African Tax Planning and Compliance
The basic rule is that, should your affairs be planned well, you will normally not have to pay any additional taxes in South Africa. This is because the way our system is structured and taking into account the various exemptions and relief available. However, where tax matters are not planned and income tax submissions are not kept up to date, we know of many instances where the tax authorities enjoyed a bit of a windfall. Your planning should incorporate the following:
Let us know should you have any specific questions concerning your personal circumstances. It is only by looking at your specifics that we will be able to provide you correct advice. See Your Tax Questions
The problem that most foreign persons in South Africa face is that local employers and tax practitioners (often the South African Revenue Services as well!) want to treat you like normal South Africans. This is not correct and in your best interest. Depending on your circumstances, different rules apply to you and these rules will always be to your benefit.
Expatriates in South Africa planning
Planning for expatriate employees to South Africa is of the utmost importance. It will pay you to go to lengths to ensure that you are not tax resident in South Africa. Should you have no choice but to become tax resident, it will still be a good idea to know in advance when you will become tax resident and thereby making use of certain planning before you become resident. See Residency Test. The work permit class and application should also be carefully considered as this may have an impact on your tax status or, even more concerning for most, impact on your exchange control residency.
Expatriate Tax Obligations
As a non-resident you will pay tax on your South African source income. This means income earned or made by doing or investing something in South Africa. The rules can become quite complex but the following is a good starting point:
Planning Expatriate pay in South Africa
Expatriate employees coming to South Africa often falls in the pitfall that they let local employers structure their packages like other local employees. This is seldom the best outcome for the expatriate or the employer. The following matters should normally be considered:
Expatriate Employment Agreements
The above should be negotiated before the expatriate’s employment agreement is signed. Special clauses to give legal effect to the above should be considered and this must be part of the final expatriate agreement. The practice of giving one letter of employment initially, another for the work permit application and then a final one for the tax consequences does not work. Professional tax filing assistance is also a must-have for an expatriate employee. Proper planning and tax preparation really can save a not insignificant amount of taxes.
There is quite a bit more to say about expatriate employees in South Africa. For more information contact us here.
US Expatriates Tax Guide 2018
All US Expatriates working in South Africa who need assistance with their US-related tax queries, i.e. Tax Returns, FBAR (FinCEN 114), FATCA (Foreign Account Tax Compliance Act) and when to file their taxes, can visit Taxes for Expats for professional assistance and access to a detailed US expatriates tax guide for 2018.