Understanding Tax Residency
Key Information for South Africans Working Abroad
What is Tax Residency
Tax residency in South Africa determines your tax obligations. If you’re considered a tax resident, you’re generally liable for tax on your worldwide income, regardless of where it’s earned. This means even if you earn money outside of South Africa, you may still need to pay tax on it. On the other hand, non-residents are typically taxed only on income earned within South Africa.
At FMJ Tax Consulting, we also assist in tax returns and specialize in assisting clients with any tax-related queries.
If you’re one of the many South Africans who have relocated to work in a foreign country and are concerned about double taxation, this article is for you. There is considerable misinformation surrounding this topic. For instance, some still recommend financial emigration – a service no longer offered through the Reserve Bank. It’s important to note that financial emigration never determined a person’s tax residency status.
Understanding Double Tax Agreements
South Africa has entered into numerous international agreements known as Double Tax Agreements (DTAs). These agreements take precedence over domestic legislation, meaning if a DTA deems you a tax resident of another country, you will be taxed on your worldwide income in your new country of residence.
Assessing Your Tax Residency
To determine if you meet the criteria for non-resident status, an assessment is required. Once this is confirmed, a formal application should be submitted to the South African Revenue Service (SARS) (not the Reserve Bank, as per Exchange Control Circular No. 6/2021). This application must include supporting evidence proving your residency in another country.
Annual Assessments and Declarations
Once your application is accepted, any foreign-sourced income will be exempt from South African tax per the relevant DTA. It is crucial to conduct an annual assessment to ensure your residency status remains unchanged. Additionally, you should declare the exempt income each year under the “amounts received as an exclusive deemed resident of another country due to a double tax agreement” section in your tax return.
Timing of Your Application
Ideally, you should lodge your application to SARS before filing your return for the year you ceased being a tax resident. This timing is critical because, upon ceasing tax residency, you are deemed to have disposed of your assets (with some exceptions) at market value. Furthermore, SARS will apportion your rebate and capital gain exemption based on the days you were a tax resident of South Africa within the tax year.
We're Here to Help
If you have left South Africa and believe you have ceased tax residency, we would like to assist you in navigating this significant transition in your life.
Frequently Asked Questions
We work with hundreds of complex individual tax cases each year. As tax is our trade and we engage with SARS each day of our working life, we have learned how to present information to SARS, how to merge documents so that SARS could easily follow and we know which documents to submit to SARS and which documents would cause confusion. We work around this in our compilations and ensure that what is submitted to SARS is easy to follow, neatly presented and is exactly what SARS needs to verify audits.
We are different in that we spend a lot of time on our presentation which often leads to successful results with SARS.
We are also different in that should SARS ask questions, we consider carefully how to respond, draft written responses and give SARS exactly what is requested, nothing more, nothing less.
In the event that SARS disagrees, we lodge disputes, sometimes even on the same day SARS raises an additional assessment or the next day. 95% of our disputes are lodged within a week.
Should the objection fail and there are sufficient grounds to overturn an additional assessment, we present the information in an appeal which means that SARS legal gets involved. Due to the level of skill, qualifications and experience the tax practitioner has, the final result is per the individual return filed more than 95% of the time. (Excludes cases where information was withheld from the tax practitioner such as additional income).
We do not simply collect documents from a client and forward it to SARS. We assess documents, inspect the document for correctness and ensure that the position taken is correct, build and audit file that is simple and understandable and only then do we present SARS with a copy of our audit file. If there is no audit or review, we still keep the audit file for our current clients in case SARS opens a past return which happens on occasion.
Many clients approach us only after filing a return and after filing documents to SARS. This could make the case harder as we have to make sense of the position taken previously, and then formulate a new position and explain the reasons for the previous versions.
For example, lets say a person claims against a travel allowance and the taxpayer submits a logbook with a different opening to the previous year’s closing, this could cause irreparable damage to one’s case. Thus, if documents are merely forwarded from taxpayer to tax practitioner to SARS, one has to ask the value of the system. if on the other hand, this is inspected and any errors corrected, then the initial filing is likely to have a much more favorable outcome. There is value in inspecting documents, building a file and ensuring what is submitted to SARS is correct, accurate and understandable.
We have to understand a case before we can give feedback so we first do an initial assessment and then we are able to put together a plan of action.
If possible, we will provide an upfront quote otherwise we will call you to explain how we can assist.
Please see our video on the home page for further information.
- Regular feedback is given to clients when their case is in progress
- Your email will be answered within reasonable turnaround times, usually 1 to 2 working days.
- You can expect full management of your tax profile
- Timeous responses to correspondence
- Reminders for your specific deadlines
- A personalised tax service
