Are you thinking of making the leap and starting a new life overseas? It’s an adventure second to none, but it’s essential to consider the financial implications, especially regarding taxes. One of the most pressing questions for South Africans emigrating is: “Do I still have to pay taxes to SARS if I live abroad?“If you’re gearing up for emigration, this question has probably already come up in conversation more than once.
To put your mind at ease, in this article, we’ll look at the complexities of South African tax residency and explore practical strategies to minimise your tax burden as an expat.
Do I have to pay tax in South Africa if I live abroad?
Whether or not you have to pay tax in South Africa while living abroad depends on your tax residency status.
- Resident: If you are considered a tax resident of South Africa, you are generally liable to pay tax on your worldwide income, regardless of where you live.
- Non-resident: If you are considered a non-resident of South Africa, you are generally only liable to pay tax on your South African-sourced income.
If you’re a South African tax resident, you’re obligated to:
- File a tax return: Even if you have no income in South Africa, you’ll still need to file an annual tax return.
- Declare your worldwide income: This includes income earned from foreign employment, investments, and rental properties.
- Pay expat taxes: You’ll be liable to pay tax on your worldwide income, subject to applicable tax treaties.
Read more: South African working abroad? How to handle foreign income on SARS tax return.
How is tax residency determined?
South Africa has specific criteria to determine tax residency. These criteria can be complex and depend on various factors, including:
- Physical presence: The number of days you spend in South Africa in a tax year.
- Ordinary residence: Your family, home, and other personal belongings in South Africa, as well as your intention to return.
- Economic ties: Your employment, business interests, and investments in South Africa.
Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
Tax for South Africans working abroad
It is important to note that South African tax residents are expected to pay tax on their worldwide income, regardless of where it is earned. This is known as ‘expat tax’. As a South African working overseas, you are considered a “tax resident temporarily abroad” until you cease your tax residency officially by completing tax emigration through SARS.
- Double Taxation Agreements (DTAs): South Africa has DTAs with many countries to prevent double taxation. If you live and work in a country where South Africa has a DTA, you can claim relief from double taxation.
- SARS foreign income exemption: There is a foreign income exemption for South African tax residents living abroad, but it is subject to certain conditions and limitations.
Read more: What is exempt foreign employment income in South Africa?
What is the tax on foreign employment income in South Africa?
As mentioned, South African residents are taxed on their worldwide income, including foreign employment income. However, you may be eligible for a foreign tax credit to reduce your South African tax liability. Tax on foreign employment income in South Africa depends on several factors, including:
- Residency status: Whether you’re a South African resident or non-resident.
- Foreign tax credit: If you’ve already paid foreign taxes on your income.
- Exemptions: If you qualify for any exemptions under the Income Tax Act, such as those provided by sections 10(1)(o)(i) and 10(1)(o)(ii).
Read more: A comprehensive guide to the SARS foreign income tax exemption for South Africans working abroad.
How to avoid paying tax in South Africa on your worldwide income
It’s important to understand that there is no legal way to avoid altogether paying taxes on your worldwide income if you are considered a tax resident of South Africa. However, some strategies can help you minimise your tax liability.
- Change your tax residency: If you can establish residency in another country with more favourable tax laws, you can reduce your overall tax burden. However, ceasing your tax residency in South Africa can be complex and require careful planning.
- Take advantage of tax exemptions and deductions: South Africa offers several tax exemptions and deductions for individuals working abroad. These include the foreign income exemption, which allows you to exclude up to R1.25 million of your foreign income from your taxable income.
- Load up on tax-efficient investment vehicles: Several tax-efficient investment vehicles, such as retirement annuities and tax-free savings accounts, can help you reduce your overall tax liability.
These strategies depend on the length of time you spend in South Africa each year, your family and business ties, and the amount of your income earned in South Africa. By understanding the tax implications of working abroad as a South African and taking advantage of the available tax breaks, you can minimise your expat tax liability and maximise your after-tax income.
How to become a non-tax resident of South Africa
This is the only legitimate way to avoid paying taxes on your worldwide income to SARS.
Here’s how it’s done: A step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
Are there any other advantages to becoming a non-tax resident of South Africa?
Once you’ve officially ceased your tax residency in South Africa, you will receive a Non-Resident Confirmation Letter from SARS. This comes with the following benefits:
- No more South African taxes: You won’t have to pay taxes to SARS on your global income.
- Simplified tax returns: You won’t need to file annual tax returns in South Africa unless you still earn an income there.
- Easier money transfers: The letter can help streamline transferring money internationally.
- Early retirement fund withdrawals: Becoming a non-resident is your ticket to cashing in your retirement annuity before the age of 55.
FinGlobal: tax specialists for South African expats
Maintaining tax compliance in two jurisdictions isn’t something you have to handle alone. In fact, given the complexity of international tax laws, it’s strongly recommended to consult with a qualified tax advisor. Fortunately, the team at FinGlobal includes certified international financial planners, lawyers and tax specialists to provide expertise in all areas of cross-border finance.
We can help you to determine your tax residency status, calculate your tax liability, advise on tax planning strategies, and ensure expat tax compliance – everything you need to ensure a seamless transition for your finances. We can assist with tax emigration, retirement annuity withdrawal, international money transfers, etc.
To get started with FinGlobal’s convenient, cross-border financial and tax services for expats, leave your contact details in the form below, and we’ll be in touch!