What is South Africa’s tax laws for expats

According to current South African tax law for expats, South Africans who are earning income abroad are assessed in terms of residency, based on the ordinarily resident test and the physical presence test. If you are deemed a tax resident in South Africa, you are taxed on your worldwide income, subject to certain exclusions or exemptions.

If you are working overseas and do not meet the physical presence requirements to be an ordinary resident in South Africa, you are exempt from tax on any foreign income. To qualify for this exemption, an employee (not self-employed) needs to have spent more than 183 full days (including a continuous period of more than 60 full days) outside of the country working, in any 12-month period. If this requirement is not met, then you are taxed on worldwide income.

However, in 2017 the National Treasury and the South African Revenue Service (SARS) announced that they would be introducing major changes in the tax exemption on South African expatriates. This new law will come into effect on 1 March 2020, and states that South African tax residents abroad will be required to pay tax to South Africa of up to 45% of their foreign employment income, where it exceeds the R1.25 million threshold.

South Africa’s tax laws that are applicable to expats can be found in the amendment to section 10(1)(o)(ii) of the South African Income Tax Act No. 58 of 1962. This formed part of the Taxation Laws Amendment Bill of 2017, which amendment was promulgated in section 16(1)(g) of the Taxation Laws Amendment Act No. 17 of 2017, on 18 December 2017 under gazette number GG 41342 (“the amendment”).

The following SARS amendments are already implemented in preparation of the foreign income tax law change:

  • SARS Interpretation Note 16 (Issue 2) – released February 2017 – Section 10(1)(o) test,
  • SARS Interpretation Note 3 (Issue 3) – released 20 June 2018 – Ordinarily resident test, and
  • SARS Interpretation Note 4 (Issue 5) – released 03 August 2017 – Physical presence.

In addition, if you are a natural person, who becomes ordinarily resident in South Africa from a specific date, any income that is received by or accrued to you from a source outside South Africa (before you become ordinarily resident in South Africa), will not be subject to tax in South Africa unless you are deemed a tax resident by the physical presence test.

However, in most instances, if you leave South Africa with the intention of living abroad permanently, you will cease to be a South African tax resident (due to the ordinarily resident test) and the result is that you, as a non-resident, will no longer pay tax in South Africa on worldwide income, but only on income that has its source (rental, interest etc.) in South Africa. You will also pay capital gains tax (CGT) when you sell immovable property situated in South Africa or if you sell a business that was domiciled and registered in South Africa.

This is also dependant on various double taxation agreements between South Africa and other countries.

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