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.
