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Don’t leave money on the table – understanding South Africa’s tax refund process for expats

Don’t leave money on the table – understanding South Africa’s tax refund process for expats

June 3, 2024


Many people find tax season stressful, but getting a tax refund can be a welcome surprise. The South African Revenue Service (SARS) may issue tax refunds if you’ve paid more tax than you owe. Even if you’re a South African living abroad, you could still be entitled to a tax refund from SARS. So, how do you know whether you have overpaid taxes in South Africa? We’ve compiled a quick guide to help explore the possibility of claiming tax refunds for South Africans residing abroad.

What is South African expat tax?

South Africa has a residency-based system of taxation. This means that all individuals who meet the requirements for tax residency will be expected to pay tax on their income, regardless of where they live and where the income is earned. Before 2020, South Africans living abroad could claim a blanket exemption on their worldwide income, but legislative changes brought expats back into the SARS’ tax net. These tax law amendments effectively created an ‘expat tax’ for South Africans living abroad while allowing for a foreign income exemption of up to R1.25 million to provide tax relief.

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Filing requirements for non-residents: do I have to file a tax return if I live overseas?

Even if you’ve left South Africa, you might still be required to file tax returns with SARS. This applies if you qualify to pay expat tax in South Africa because you:

  • Have income originating from South Africa
  • Hold assets in South Africa, generating revenue
  • Still, meet the requirements for tax residency in South Africa

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In other words, the only way to avoid paying tax in South Africa is to complete the process of tax emigration to become a non-resident for tax purposes, ensure that you no longer earn income in South Africa, and have no assets remaining.

Potential refund scenarios: who qualifies for a refund from SARS?

If you have paid more tax in South Africa than you owed, you might be eligible for a refund from SARS. This can happen due to various reasons, such as:

  • Tax overpayment: Mistakes happen, and you might accidentally pay more than necessary.
  • Tax deductions and credits: Certain deductions and credits can lower your tax bill, potentially leading to a refund.
  • Income bracket changes: If your income falls into a lower tax bracket during the year, you may be eligible for a refund.

Let’s unpack these tax refund scenarios and how they might apply to you:

1. Double Taxation Agreement (DTA) relief:

  • DTAs are agreements between South Africa and other countries to avoid double taxation on income earned.
  • These agreements may allow you to claim a foreign tax credit in South Africa for taxes paid on foreign income.
  • DTAs will apply to South African tax residents who earn income and pay tax on that income in another country.

Claiming process: how to claim a tax refund from SARS

  • File a completed ITR12 tax return with SARS. They’ll calculate your foreign tax credit to offset your South African tax bill.

2. Tax refunds on retirement lump sums:

  • The tax location of lump sum payments is determined by the applicable DTA, which sets the taxing right to the resident or source country.
  • As such, it is essential to establish the nature and source of the lump sum to determine whether it qualifies for a tax refund from South Africa.

Claiming process: how to claim a tax refund from SARS

  • If the lump sum payment is eligible, you must object with SARS within three years of the issued assessment to initiate the refund process.

3. Tax refunds on withholding tax on interest:

  • The Income Tax Act imposes a 15% withholding tax on non-residents receiving specific interest payments or royalties from South Africa.
  • The South African entity making the payment withholds and transfers this tax to SARS on your behalf.
  • You might qualify for a reduced withholding tax rate, but it needs to be requested from SARS.

Claiming process: how to claim a tax refund from SARS

  • The South African entity that withheld the tax submits a “Withholding Tax on Interest Declaration” to SARS.
  • Upon approval, you become eligible for a refund of any overpaid withholding tax.
  • The entity receives the tax refund and then pays it out to you. This application must be submitted within three years of the interest payment.

4. Tax refunds on pension and annuity income:

  • SARS charges income tax on pension and annuity income paid in South Africa.
  • Tax relief is available for non-residents, allowing South Africans overseas to claim refunds.
  • To qualify for tax relief (exemption under a DTA), submit the RST01 directive application annually to SARS.

Claiming process: how to claim a tax refund from SARS

  • If tax has already been deducted from your pension or annuity, submit the RST02 application to claim a refund based on the DTA.

5. Additional refund scenarios:

You may be eligible for a tax refund from SARS if you:

  • Spent part of or the entire tax year overseas with income from a South African employer.
  • Worked for part of the year or for an employer outside South Africa.
  • Received lump sum payments like bonuses or redundancy payouts.
  • Had multiple employers in a year.
  • Received interest income in South Africa.
  • Haven’t filed tax returns yet.

FinGlobal: tax refund specialists for South African expats

Unsure whether you’re due a tax refund from SARS? FinGlobal can assist! We take all the headaches out of claiming your South African tax refund – from handling the paperwork for you to engaging and following up with SARS on your behalf. It couldn’t be easier! We’re also ready to assist with tax emigration, expat tax compliance, tax clearance, and so much more!

To learn about our convenient, reliable services, please leave your contact details in the form below, and we’ll contact you to discuss your situation.

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