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By Andrew Rissik*
Many South Africans work in income tax-free countries like the UAE on a medium- to long-term basis. Working most of the year in these countries exempts many of these expats from paying income tax to SARS on foreign earnings. However, with recently proposed changes to tax laws, many expats are finding that remaining a tax resident in South Africa is likely to become costly. The good news is that there are steps, like financial emigration, you can take to ensure you don’t land up paying tax on your foreign earnings.
Why you can no longer avoid paying tax
Currently, if a South African resident works in a foreign country for more than 183 days a year, the foreign employment income earned is exempt from tax, subject to certain conditions. This exemption is for employees of private-sector companies.
In terms of the residence-based system of taxation, South African residents are taxed on their worldwide income. However, the government, in the 2017-2018 budget, states that this exemption on foreign employment income appears excessively generous.
If a resident works in a foreign country for more than 183 days with no tax payable in the foreign country, that foreign employment income will benefit from double non-taxation. It is proposed that this exemption be adjusted so that foreign employment income will only be exempt from tax if it is subject to tax in the foreign country.
In this scenario, the vast majority of South Africans in countries like the UAE would be regarded as ordinarily resident in South Africa, even if they spend the requisite time outside the country, even for years at a time. As a result, thousands of expats so may be caught in this new tax net.
What about the Double Taxation Agreement?
In simple terms, the existing Double Taxation Agreement (DTA) provides that income from employment in the UAE is only taxable in the UAE unless the employment is:
- Performed in South Africa
- Performed in the UAE for less than 183 days in a 12-month period
- Is paid by or on behalf of a company that is not resident in the UAE
There are articles circulating on local news outlets that have stated, rather optimistically, that no matter what the new income tax rules say, DTAs could allow South Africans living abroad to continue not paying South African tax.
What these commentators seem to have forgotten is that the South African government can choose to either amend the treaty or simply pass legislation overriding the treaty relief. A DTA does not hold any superiority over the Income Tax Act.
How to not get caught out by this new tax rule
You will need to apply to the SARB to have your resident status changed to non-resident. This is a legitimate way to avoid paying South African tax on your earnings in the UAE, or any other tax-free country.
Your tax affairs will also need to be put in order, and you will need all the required documentation for your financial emigration application to the SARB.
This can be a complicated and difficult procedure. What makes it even more challenging is that, when you are not living in South Africa, you may find it difficult to locate and submit the relevant documentation needed for your financial emigration application.
We are experts in helping South Africans become non-residents of South Africa, and if you’d like to get hold of us, [fill in the form on this page].
You won’t lose your citizenship and your decision can be reversed
If you’re worried about losing your South African citizenship by changing your status to non-resident with the SARB, do not worry. Your citizenship status and your resident status are independent from one another.
This means that should your circumstances change in the long-term and you decide you’d like to move back to South Africa, you are free to do so and then again change your resident status with the SARB.
Please note: You will not be allowed to live in South Africa for more than the number of days allowed in terms of the time-based residence test to keep your non-resident status.
- To get a free assessment of your situation head to this page and fill in our form. Following that, one of our consultants will contact you to help you through the process of changing your resident status.
- If you’d like more information on financial emigration or if you’d like some advice on how best you should proceed please contact our financial emigration team on +27 (0) 21 657 2133 or at [email protected].
