South African Expatriate Tax Guide
Navigating the intricate web of expatriate tax obligations is crucial for South Africans living or working abroad, as it can have significant implications on your financial well-being and compliance with local and international tax regulations.
DETERMINING YOUR TAX RESIDENCY STATUS
South African Tax Residency Tests
Tax residency status is evaluated through one of two tests: the ordinary resident test or the physical presence test.
An individual is considered a tax resident if they meet the criteria of either test. The ordinary resident test serves as the initial assessment.
If an individual fails to satisfy the requirements of this test, the physical presence test is then applied to determine their tax residency status.
Subjective Test
Ordinarily Resident Test
The determination of whether an individual is considered an ordinary resident involves a subjective evaluation of their intention to establish residency and the circumstances that support this intention.
This assessment is particularly relevant when the individual has departed from South Africa. An individual is typically regarded as an ordinary resident when they maintain their primary or habitual place of residence – a place that can be characterised as their true home.
Objective Test
Physical Presence Test
The physical presence test is an objective assessment that solely relies on the number of days an individual has physically spent in South Africa during a specific period.
The physical presence test is applied when an individual fails to meet the criteria of the ordinary resident test, such as in situations where they have left South Africa to work abroad with no intention of returning.
To satisfy the requirements of the physical presence test, an individual must be physically present in South Africa for the following durations:
- A minimum of 91 days in total during the tax year in question.
- A cumulative total of 91 days during each of the five tax years preceding the tax year in question.
- An aggregate of 915 days during the five previous tax years.
The outcome of the tax residency test dictates the subsequent actions an individual needs to take
After determining your tax residency status through the tax residency tests, individuals have two options.
They must either claim applicable tax exemptions or officially inform the South African Revenue Service (SARS) about their non-resident tax status.
It's important to note that failing to meet the tax residency test does not automatically make an individual a non-resident for tax purposes.
Non-residency status has to be formally declared to SARS through one of three distinct processes, depending on the individual's specific situation.
In summary, regardless of whether you qualify as a tax resident or non-resident, you are required to take action. Either claim relevant exemptions or officially notify SARS of your residency status through the appropriate process specific to your circumstances.
Foreign Income Exemptions
For South Africans who are considered tax residents by virtue of satisfying the criteria specified in the tax residency tests.
The following exemptions can be applied:
Section 10(1)(o)(ii)
Expat Tax Exemption
To be eligible for the Section 10(1)(o)(ii) exemption of the Income Tax Act, South African tax residents must provide the relevant services as an employee ( employment contract), and these services must be rendered outside South Africa.
The exemption exclusively applies to remuneration received for foreign services and does not cover other forms of income earned within South Africa.
Importantly, South African residents must be physically present outside the country for a total period exceeding 183 days within any 12-month span, with at least 60 of those days being consecutive.
Section 10(1)(o)(i)(aa)
The first seafarer exemption
The provision outlined in Section 10(1)(o)(i)(aa) of the Act, commonly referred to as "the first seafarer exemption," pertains to individuals employed as officers or crew members aboard vessels engaged in international transportation of passengers or goods for commercial purposes.
Fulfilling the requirements set forth in this exemption allows such individuals to be fully exempt from taxation in South Africa on the foreign employment income they earn while working aboard these vessels.
Section 10(1)(o)(i)(bb)
The second seafarer exemption
The provision outlined in Section 10(1)(o)(i)(bb) of the Act, commonly referred to as "the second seafarer exemption," applies to individuals employed as officers or crew members aboard vessels engaged in prospecting, exploration, mining, or production of minerals from the seabed outside of South Africa.
This exemption is specifically applicable to those seafarers whose sole responsibility is to ensure the safe passage and navigation of the vessel.
Fulfilling the requirements set forth in this exemption allows such individuals to be fully exempt from taxation in South Africa on the foreign employment income they earn while working aboard these vessels. (This exemption is not relevant to crew members working on superyachts.)
Processes That Confirm
Non-Resident Tax Status with SARS
For South Africans who are considered non-residents for tax purposes by virtue of not meeting the criteria specified in the tax residency tests.
Financial Emigration
This process enables South Africans to end their tax residency with the South African Revenue Service (SARS) by obtaining a "Notice of Non-Resident Tax Status" letter, and grants them the required approvals to withdraw funds and facilitates money transfers out of the country through the issuance of an Approval for International Transfer (AIT) pin.
Once the financial emigration process is concluded, only income earned in South Africa will be declared (if and where applicable) to the South African Revenue Service (SARS), and no foreign income will need to be declared.
Tax Emigration
For South Africans who no longer hold any assets within the country, this process allows them to terminate their tax residency with the South African Revenue Service (SARS) by acquiring a "Notice of Non-Resident Tax Status" letter.
Once the tax emigration process is concluded, individuals can then begin to deregister their income tax number with the South African Revenue Service (SARS).
Double Taxation Agreements
This process enables South Africans to seek tax relief through the application of a Double Taxation Agreement ("DTA"), ensuring that they are not subjected to unfair taxation in both South Africa and the corresponding country covered by a specific DTA.
It serves as a safeguard against double taxation and outlines various requirements that a taxpayer must fulfill to determine their tax residency status.
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