Expat Tax - A brief overview
- Rico de Villiers
- Aug 15, 2024
- 4 min read
Updated: Aug 15
What is Expat Tax?
An expat is someone who temporarily lives and works outside their country of citizenship or residence. In South Africa, expats are now taxed on their global income, which includes earnings from foreign employment. Previously, employment income earned abroad was exempt in it's entirety from tax obligations in South Africa, should the taxpayer in question meet the necessary requirements.
Some factors to note about expat tax as it applies to foreign employment income:
Employment is exercised in the place where the employee is physically present when performing their duties or activities for which the employment income is paid.
For tax relief, expats can utilise Section 10(1)(o)(ii) of the Income Tax Act if they meet the requirements. In terms of this relief, they can request that the first R1.25 million of their income earned abroad be exempted from tax, which is applied in the form of a rebate or deduction, depending on the situation.
What does SARS expect from expats in terms of their foreign employment earnings?
All worldwide income must be declared in the individual’s tax return and if relief in terms of the foreign employment income exemption is sought, the individual must prove that they meet the requirements to utilise such relief.
What is the SARS qualification test for the foreign employment income exemption (Section 10(1)(o)(ii))?
Is the individual a tax resident as defined in the Income Tax Act?
Is the remuneration eligible for the exemption? (i.e: it is not excluded by definition because it was earned while holding a public office/civil servant position)
Was the individual employed to render services outside South Africa?
Was the individual party to an employment relationship in which the income was earned? (This excludes independent contractors, self-employed and freelancers)
Then it is necessary to establish:
Was the individual employed and did they spend more than 183 full days outside South Africa during any 12 months within the required period?
Was the individual employed and did they spend more than 60 consecutive full days outside South Africa during any 12 months within the required period?
Any taxes paid on foreign income earned may qualify for the section 6quat rebate.
The foreign tax rebate - Section 6 quat:
South Africa offers relief from being taxed twice on foreign-sourced income for its residents. This relief is given through a rebate or deduction on the foreign taxes paid. Section 6quat (1) is the primary method used to provide this relief.
Rebate method = Section 6quat (1) if the foreign taxes were proved to be payable.
Deduction method = Section 6quat (1C) (a) if the foreign taxes were paid but not proved to be payable.
Here are 10 tips to manage your tax compliance status with SARS specifically aimed at expatriate taxes:
1. Understand the Tax Residency Rules
Tax Residency Status: Determine your tax residency status. South Africa taxes residents on worldwide income and non-residents on income sourced within South Africa. The "physical presence test" and "ordinarily resident" criteria are crucial for determining your status.
Double Taxation Agreements (DTAs): If you're living in a country that has a DTA with South Africa, you may be protected from being taxed twice on the same income. Understand the specific provisions of the DTA between South Africa and your current country of residence.
2. Expat Tax Exemption
Foreign Employment Income Exemption: As of March 1, 2020, South African expats can exempt the first R1.25 million of their foreign employment income from South African tax. Ensure you meet the criteria for this exemption, such as being outside South Africa for more than 183 days in a 12-month period, with at least 60 of those days being continuous.
3. Manage Your SARS Compliance
Provisional Tax Returns: If you still have South African-sourced income, remember to submit provisional tax returns and make the necessary payments. Even if you’re exempt from paying taxes on foreign income, you may need to declare it.
Non-Resident Tax Status: If you are a non-resident for tax purposes, ensure your status is correctly reflected in your SARS profile to avoid unnecessary complications.
4. Keep Detailed Records
Maintain Documentation: Keep detailed records of your time spent in and out of South Africa, your foreign earnings, tax payments in the country of residence, and any communication with SARS. This will help in case of audits or disputes.
Foreign Tax Credits: If you’ve paid tax on your income in your country of residence, you might be eligible for a foreign tax credit in South Africa. Keep all records of foreign taxes paid.
5. Seek Professional Advice
Consult a Tax Professional: Given the complexities of cross-border tax issues, it’s advisable to consult with a tax professional who specializes in expatriate tax. They can provide tailored advice and help you navigate the intricacies of South African tax law and DTAs.
Stay Updated: Tax laws change frequently. Ensure you stay informed about any changes in South African tax laws that might affect your obligations.
6. Consider Financial Emigration
Financial Emigration: If you plan to leave South Africa permanently, consider financial emigration. While this process doesn't affect your citizenship, it does change your tax status with SARS, potentially relieving you from certain tax obligations.
7. Regularly Review Your Tax Status
Annual Tax Filing: Even if you're living abroad, you may still need to submit a tax return to SARS. Regularly review your tax status and ensure all necessary returns are submitted on time.
Should you require any assistance with your personal taxes, and more specifically expatriate tax, give us a call so we can schedule a free consultation to determine your needs. Alternatively you can directly request a quote from our listed service button below and one of our advisors will contact you.
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