Author: Melanie Coetzee
MC Compliance and Legal Solutions
4 February 2021
Expatriates and South African tax laws
Many hundreds, if not thousands of South Africans depart annually in search of greener fields abroad. Most of these expats retain their South African citizenship and live undisturbed with a work VISA issued by the foreign country.
Expats also almost always accept or assume that the income tax they pay on their foreign income, in the foreign country in which they are remunerated is sufficient and mostly do not consider any consequences which may arise at the South African Revenue Services. These consequences are usually not too serious provided that the expat is able to prove full-time residency in the foreign country and that taxes are indeed paid in that country.
The waters, literally and proverbially become a lot murkier when expats work abroad temporarily on short term contracts and receive remuneration in a foreign currency in a country where there is no tax payable. This situation applies to offshore contract workers who live on a ship for instance for 3 or 4 months and who are paid in USD($) offshore in an Island bank account where no income tax applies. If such contract worker returns to South Africa in between each work contract, introduces large amounts of monies earned offshore and spends more than 6 months in total here, such contract worker may well be deemed by SARS as being a South African tax resident and will be required to declare the foreign income in South Africa for taxation here. Many of these affected contract workers have, in the past, been able to avoid his deemed tax liability in South Africa by ensuring that they do not exceed the 6 month period. However, SARS now looks NOT only at the number of days in/out of South Africa but ALSO at where the person lives otherwise (domicilium). SARS has indicated that they will look back at the traveller’s dates of entry and exit to determine whether such traveller has taken advantage of the old “days” rules and will look at the pattern of residency over as much as a 5 year period.
In addition, with reference to the recent Taxation Law Amendment Bill, expat’s ability to repatriate their retirement funds from South Africa freely is being curtailed. The recent amendment proposes to do away with exchange control emigration as a mechanism to get access to one’s retirement funds. Instead, the new requirement to access retirement funds will be that the person has ceased to be a South African tax resident, and has remained tax non-resident for at least three consecutive years. If the exchange control emigration application is submitted before 28 February 2021 and approved before 28 February 2022, a person would be able to access retirement funds. If submitted, but not approved, then the person will have to wait a period of three consecutive years after leaving South Africa before being able to repatriate the pension amounts.
For many South Africans already living abroad, this will be a welcome relief, as they would possibly already be tax non-resident in South Africa. As a result of the amendment, they would be able to access their retirement funds as soon as they have been tax non-resident for three consecutive years after 28 February 2021. For any South Africans planning to leave South Africa within the next year, this might be unwelcome news as, after 1 March 2021 they would need to wait three years to access any pension preservation fund or retirement annuity.
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