SOUTH AFRICAN EXPAT TAX: YOUR QUESTIONS ANSWERED BY THE EXPERTS
With South Africans who live or work abroad facing the imminent introduction of “expat tax”, there has been a lot of scaremongering and confusion. Recently the expert tax team at Tax Consulting South Africa kindly offered to answer SAPeople members’ questions. Here you will find a selection of the questions submitted and answers by Jerry Botha, Managing Partner of Tax Consulting SA…
- Hi there. Thanks for the opportunity to ask questions. I live in Northern Ireland (UK), having left SA in ’96. Have permanent residence in UK and dual SA / Irish citizenship as hubby is from N Ireland. Only worked in SA for 2 years as an intern and junior doctor, only investment in SA is RA (Retirement Annuity) which I stopped in 2003 and is worth around R62,000. Have not spent more than 3 weeks in SA in the last 20 years. From reading various posts should I be confident that I would be regarded as non-resident? Who would determine this? I’m not sure that I have a tax number with SARS? How would I be able to find out without actually revealing myself to them?
Jerry Botha: The fact that there is a South African retirement annuity means there is a permanent record in South Africa. Despite all the negative press around SARS IT systems, not all completely untrue; this definitely remains a SARA drive and will become more sophisticated in future.
Our standard guidance is to adopt a conservative tax and compliance position, especially as it appears you are not breaking any law.
Consider doing financial emigration, withdrawing the retirement annuity and close of your South African affairs permanently. This does not risk your South African passport. Getting onto the SARS radar carries effectively zero risks in this instance, as even where you get an enquiry, you can evidence your tax residency in a double tax treaty country. This is a time-consuming and/or costly process, so not something we believe is client-centric, but the point is that you do have Double Tax Treaty protection, where you need it. Where you do nothing, you will anyway need to deal with the retirement annuity one day (currently below the tax threshold).
- From ‘Family’: This is very scary. I’m really worried about this. We moved 13 years ago and I thought that if you didn’t live in a country and weren’t benefitting from any services, and paying tax in the country you are in, then you didn’t have to worry about tax in SA. What are the ramifications of this law? What can my husband and I do? I am sick to my stomach with fear. What if we now owe back taxes? Is there a payment plan?
The prudent approach is to get your SARS and SARB status checked and to make sure you are compliant. Where you only have not tax filled correctly or complied with formalities – I would just get this fixed proactively, as SARS penalties can be managed where you self-correct. Where you have not been on the wrong side of the law and actually owe SARS taxes, you need to determine your tax liability and then do a SARS Voluntary Disclosure Program (VDP) which is the only approach to follow where there are no penalties or criminal sanction.
- From Erwin A: How is the percentage over the threshold calculated?
The normal rules will apply for South African tax. There were various computational problems highlighted to National Treasury in the last session, but effectively the simple computation will be –
Non-South African Salary: R2,500,000
Fringe Benefits: R500,000
Taxable Income: R3,000,000
Taxable Income: R2,000,000
Tax on R2m is determined as follows, which is exactly the same as for all South African taxpayers –
Tax on R1,5m = R532,051
45% on amount above R1,5m = R225,000
Total Tax before rebate = R757,041
Rebate = (R14,220)
Tax Payable before tax credits = R742,821.
Against this amount, you have to claim tax credits, i.e. taxes paid in a foreign country.
See more examples and tax rates on –
What are the options other than financial emigration?
Where you cannot do financial emigration, you can always claim double tax treaty relief, where you are resident in a Double Tax Treaty and meet the requirements.
There are normally very good reasons why South Africans do not want to do financial emigration, and I recommend those first be unpacked.
If it is because South Africa remains your real and main home, you are correct that you cannot do financial emigration and financial emigration is then indeed not an option for you.
If it is because you want to keep South African assets or retain your South African passport, there is misinformation – both of these are possible despite financial emigration, so you need to investigate further.
- From Dawn D: I’ve read you cant be double taxed if there is an agreement between SA and the country you living in. Double Tax Agreement?
There can never be double income tax or double capital gains tax, regardless of whether there is a double tax agreement or not. Even where there is no Double Tax Agreement, you can claim ‘unilateral’ tax relief under section 6quat of the Income Tax Act.
The big question is when are you considered a non-resident? My understanding is the minute you own or rent a home is one of the times you are a non-resident?
This is completely incorrect.
- From Cheryl H: We live in the USA and have done for the last 24 months. We own a house in South Africa which we rent out. The rental amount does not cover all our costs so we are not making any profit on this rental. Can we keep the house, bond and one bank account open and still not pay tax to the SA government?
You will normally assume US tax residency when you arrive there and need to file the US 1040 tax returns from date of arrival. Per the South Africa / United States Double Tax Agreement, the rental property needs to be disclosed in South Africa. This must also be disclosed in the United States and any additional taxes must be paid thereon in the United States.
Also, be careful of the United States capital gains tax on the sale of the property and their capital gains tax rules which are different and taxes are much higher. Thus, you will have to pay South Africa tax on this first and then any additional taxes in the United States.
There is no link between keeping the property, having a bond and paying taxes – these are different concepts and should be treated as such.
- From Martin G: I am currently working in Zambia (residential) and have been here for 9 years. We currently do pay in-country taxes as part of our contract. My question is, I only visit/stay in South Africa for about 30 days a year. I still have my house and assets there. Will I be required to pay taxes on the amount earned above R1m?
The question depends on whether you are still ‘ordinarily resident’ in South Africa and, even where you are, you can claim Double Tax Treaty relief under the South Africa / Zambia Double Tax Agreement. The problem with Double Tax Treaty relief is that this is an every year process, so you need to get a Zambian Tax Residency Certificate each year. On other Zambian clients, we have seen the following solutions followed –
Remaining tax resident in South Africa and just claiming the Zambian taxes as credits – this all depends on how much you earn and what benefits you receive. The Zambia effective tax rate is actually quite high.
- Financial emigration where your intention is to leave permanently.
- Claiming Double Tax Treaty relief, albeit quite a process.
- More complex planning solutions for high net worth cases.
- From Wayn M:Thank you for trying to clear up this tax story. My brother left South Africa about 25 years ago without immigrating to the UK and now has full UK citizenship as well as keeping his SA citizenship. He has not worked in SA since leaving. He owns a property in South Africa which our mother resides in. Can or does he need to do anything in order not to be taxed in SA? Should he offload his property and maybe donate it to our mom or one of his two brothers who are South African? Please advise what needs to be done and if there are any costs involved.
He is definitely not tax or exchange control resident. I would recommend he keep the property (as there will be UK donations’ tax implications otherwise) and just make sure he is formally on SARS and SARB record as non-resident for tax and exchange control purposes.
- From Aadila R: I have been working in the UK for the last three years. My plan is to return to SA after 4 years, so financial emigration has not crossed my mind.
This would appear absolutely correct.
I do not have any assets in SA. I am currently bordering the R1 million income before tax. It is likely that I will cross the threshold by the next tax year. I meet the tax non-resident definition and UK has a double tax agreement with SA so I have been submitting a nil return and declaring my UK income and paid the taxes.
How will the new expat tax affect me and what are my options, should I financially emigrate and when I do eventually return to SA register with SARS?
Get from the HMRC a UK tax residency certificate and claim double tax treaty non-residency in South Africa each year, following the correct process. Alternatively, get some tax advice as even where you do not claim the double tax treaty relief, I am pretty sure you will have no RSA taxes to pay (note you must still declare to SARS, and claim the exemption and tax credits), as the UK taxes are higher than the South African obligation for all my other clients.
- From Marnus M: In order not to pay this tax, I understand you need to inform SARS that you are emigrating from a tax point of view (financial emigration) – but still retaining South African citizenship, passports.
Correct – you lose your citizenship and passport only where you obtain a new citizenship and do not follow a correct Home Affairs process.
How should this be done? (What is the process?)
There is a set bank / SARS / SARB process you need to follow and we recommend that you use someone who specialises herein. Our team leader focussing herein is firstname.lastname@example.org.
I have a few properties back in SA which I rent out. Will I need to sell them or how will it work? How do I keep them but still emigrate from a tax point of view?
The financial emigration process, or not, does not change property ownership – you can keep them and the normal tax rules apply on rental profits and capital gains when you sell them.
- From Tersia P:I have a few questions. Please explain the ‘million rand’. What is the R1m based on? My new country’s exchange rate to SA exchange rate OR based on what people get paid for similar jobs in SA?
The system works that you take your actual foreign income and convert to this ZAR. There are different rules on how you convert monies, but one way is to use the SARS published currency conversion tables. From this amount the R1m is deducted, to derive at the amount on which tax must be computed.
I live in New Zealand. My salary is $75k per annum (that does not include the employer’s 3% contribution to my retirement savings plan and the fact that I am on the company’s group life insurance policy).
Someone in the US doing a similar job will earn anywhere between $54K – $122K.
A similar role in SA would be paid approx R428k per annum.
Approx exchange values as of today:
USD54K = R775K
NZ$75K = R744K
The fact that South African law does not cater for tax relief on these employer contributions, nor give tax relief for employee contributions – which is allowed in a foreign jurisdiction is a problem. SARS / SARB is well aware hereof but indicated that at the moment they are not considering making adjustments to this harsh treatment.
Will this Million Rand be adjusted annually to allow for annual salary increases?
They should, but I would not bet on this!
What other benefits that we receive from our employers will be included in this limit i.e. superannuation, government pensions schemes, life insurance, etc
The only item specifically excluded is employer social security contributions. Otherwise, all fringe benefits are taxable and this is really not fair, but we cannot lobby National Treasury more than what we have done already on this point.
There is no landline number on the SARS website. So I cannot call them from NZ to get a new password for my E-filing. I have been trying to get that resolved via 2 different tax firms in SA. They also won’t let me submit manual returns via these tax firms. So my question is: are they going to make their systems more user-friendly for us expats so that we can willingly pay these extra taxes so that we can be compliant?
This is strange as a competent tax firm can do this remotely easy-peasy.
Do I have to submit a tax return even though I earn less than R1m?
Where you are tax resident – YES!
Where you are not ordinarily resident and have no RSA income – NO!
Does this new law pertain to all expats in all countries worldwide or only countries with whom SA does not have a double tax agreement?
All South African tax residents, regardless of a Double Tax Treaty country. The answer is the same as the previous one, regardless of whether you are in a Double Tax Treaty country or not.
- From Anon: I have dual citizenship, and work in the UK for long periods. My net earnings are about £24000 per annum. Have a SA bank account. How would the new Expat tax affect me? Would also like information on Financial Emigration as I have annuities in SA. What happens to my SA bank account? With Standard Bank. Thanks.
The financial emigration process will allow you to withdraw the retirement annuities. I am however unsure whether you will qualify for financial emigration, i.e. do you stay in the UK permanently?
- From Tia S– This is a question re expat taxes on behalf of a group of Saffas living in Canada where some of us have dual citizenship, some only Canadian and some SA but tax residents of Canada. Canada has an agreement re taxes with SA. How will we be affected, or will it be status quo?
This is the normal Double Tax Agreement and the only SARS Binding Ruling ever obtained on tax residency concerned this agreement with Canada. So the agreement is strong and offers good protection.
Our taxes and tax brackets in Canada are similar to SA, but one of the concerns is that we get great tax rebates here, does SARS have any claim to that?
Absolutely valid and correct concern. SARS does not give the same tax breaks, so the effective taxes in South Africa tends to be higher – it is better to do financial emigration or claim Double Tax Agreement relief and get around the expatriate tax.
Do we have to submit proof of tax residency to SARS or only if they ask?
SARS will assume you are resident until you tell them otherwise. The onus of proof is on the taxpayer to show that they are non-resident.
Is it advised to do financial emigration, or is it not really necessary? Some say it’s safer to do that, but it’s a huge and long process.
We recommend this is always done where you legally qualify for this. This is a legal requirement and formally notes your SARS and SARB status on record as ‘non-resident’. Agreed it is a long process with costs, but it is the most secure path to formally changing status.
If you earn some income eg. dividends/interest or retirement annuities in SA, or even if you earn nothing in SA, do you still have to submit a return to SARS every year?
The general answer is where you are non-resident and earn dividends, interest or retirement annuities in RSA, you must file tax returns and pay taxes thereon. Please note this can be overridden by Double Tax Agreement treatments.
Where you are tax resident, you need to submit a return every year, even where you have non-South African taxable income.
Is it true that SARS can lay claim to your money in a SA bank if they believe you owe them taxes?
Correct. They can take from a bank account and can ask a foreign country’s SARS equivalent to help with the collection of foreign taxes.
If you have any ‘expat tax’ questions pertinent to your situation, write to us – anonymously if you prefer – at email@example.com, or write directly to firstname.lastname@example.org.