Prior to 1 March 2020, expatriates working abroad were able to exempt their foreign employment income from taxation. However, the provision was amended to limit the exemption to R1,25 million. Consequently, foreign employment earnings in excess of R1,25 million remain taxable in South Africa for tax residents.
Some questions on many expatriates’ minds include:
- How will SARS find me?
- What does the SARS audit of an expatriate look like?
- What questions should I expect?’
Anyone who has been following the SARS expatriate tax law changes will know that SARS established a dedicated ‘Foreign Employment’ unit to target non-compliant expatriates. These expatriates will most likely be audited sooner or later.
What happens when you are on their radar and the audit commences?
On a SARS audit request dated 02 November 2020, the following questions/requests were posed to the expatriate filing the return:
- Date of departure from OR Tambo airport;
- A copy of the expatriate’s residency certificate;
- A copy of the expatriate’s tax clearance application and approval for immigration;
- On the unsold property in South Africa, what is the intention of holding this property?;
- Submission of 12 months bank statement with all income and a description which reconciles with what was declared to SARS.
The questions/requests will be a reality check for those who have been putting off dealing with their tax obligations decisively, or who followed the ‘quick and easy’ solutions, which leave room for maximum risk and little protection in the long run.
With SARS’ recent inclusion of the words ‘wilfully or negligently’ in the Tax Administration Act, one cannot take these questions lightly when responding, nor plead ignorance after the fact; the consequence of which include imprisonment or a hefty fine.
Options for the non-compliant expatriate
If you are claiming non-resident tax status in South Africa, the onus of proof lies on you as the taxpayer to evidence this status. There are options for expatriates, being:
- Financial Emigration – Your tax record should show that you have financially emigrated, or are in the process of doing so, before the SARS audits starts; or
- Double Taxation Agreements – If financial emigration is not possible, relief under the DTA tie-breaker clause is an alternative to breaking tax residency. This must be properly done and declared to SARS before an audit.
Where you cannot financially emigrate or utilise relief under a double tax agreement, you need to look at the various legitimate means of reducing your SARS obligation.
Those who think that they have gone undetected and will keep themselves hidden, must know SARS is leaving no stone unturned, and is only starting to warm-up. Eventually, they will be found.
Those who have relied on ‘quick-fix’ solutions from their tax practitioners will need to deal with the consequences.
SARS is identifying expatriates and they have started with enforcement; with the shortage of revenue collection, they have to tap into the pool of expatriates who have been non-compliant in the past.
In short, do something to formalise your tax residency status or get ready to deal with a tougher SARS going forward. This filing season, obtain the services of a tax or emigration specialist who can provide legal and financial guidance – before SARS comes knocks on your door.
Click here to view the SARS audit request mentioned above.