If you are working and earning outside of South Africa, you might wonder what your tax obligations are in South Africa? In this article, we will try to make sense of it all and share the options available to you.
According to the Income Tax Act a South African tax resident is taxed on world-wide receipts and accrual. This means that you need to pay tax on any and all sources of income. If you are a non-resident tax-payer you will only be taxed if the source is South African (for example rental income on a property in South Africa).
One big thing to remember: leaving the country does not automatically exempt a South African from declaring and paying tax in South Africa. Not doing anything also means that you need to declare your world-wide income to SARS. So it is best to familiarise yourself with your options and choose one that best suits you.
You have a responsibility towards SARS: the tax-payer should inform SARS that they ceased to be a resident (ie emigrating or moving abroad) in which case you will be need to pay exit tax.
You say what? What is exit tax? Exit tax is Capital Gains tax on World-wide assets at the time of ceasing to be a resident.
Sing with us “I want to break free”.
You can. The option is to break Tax Residency.
In SA we have 2 ways of proving Tax Residency.
Ordinarily Resident Test – This is the country to which you would naturally and as a matter of course return to from your wanderings. Your usual or principal residence.
Physical Presence Test – When a South African leaves the country and reamains outside SA for a continous period of at least 330 full days, you break your tax residency.
It is important to make the decision whether you will return to SA after your wanderings, to understand if you can break tax residency.
Things to consider:
Where is your property
Where is your primary residence
Where does your family live
Do you have pension in SA
Where do you plan to retire
OPTION 1:
Financial Emigration – what it is and what you need to know:
This is a good option if you are planning to sell all your SA assets and take the funds offshore.
This can be a costly and long exercise.
We would only recommend this option if you don’t plan to reside in SA in the future.
The end of the process is to Deregister your income tax number with SARS. For good. This is a complete Tax Migration.
With this option you can withdraw your Retirement Annuity before retirement and take it with you.
You can still use this option if you plan to leave assets in SA, but you will not be able to deregister your tax number as you still need to declare your SA source based income in SA.
OPTION 2:
Non-Resident Tax-payer status
This option is best if you still have SA assets which you plan to leave in SA.
You only declare your SA source based income, but not on any foreign income (as you will be seen as a non-resident tax payer).
This option is fairly easy as we only apply at SARS for your status to be changed.
If you reside in a Treaty Country that we have a Double Tax Agreement with, your tax paid in the foreign country will be deducted as a tax credit in SA, so if you pay a higher tax bracket in the foreign country, your tax payable in SA will be zero.
If you have no ties in SA and your primary residence is abroad, you can break your tax residency by spending 330 full days out of SA.
Please note the deadline for Financial Emigration is 28 February 2021 after which it will be phased out.
After this date, you can withdraw your Retirement Annuity; Pension Preservation Fund; Provident Preservation Fund if you can prove that you have ceased to be a resident and remain in this status for 3 consecutive years.
In both options you need to declare CGT (Capital Gains tax) on your world-wide assets owned at the time you ceased to be a resident.