On 1 March 2020 the much talked about Tax on Foreign Income became a reality in South Africa. The question on everybody’s lips is: “Does this new tax apply to me?”
The short answer to the question is probably yes. It applies in the sense that this is something to be considered by Taxpayers, although there may be no tax impact or in some instances this actually doesn’t apply to them at all. The first question taxpayers should determine is if they are Tax Resident in South Africa. This Tax residency is not the same as where you are legally resident. The question is partly addressed through fact, and partly through intention. Each case needs to be verified on its own merits. This answer to this question is determined by the Taxpayer (since South Africa is on a self-assessment system) but must be defendable to SARS.
Taxpayers should bear in mind that their tax residency can change unintentionally and that they may be unaware of this. This is especially problematic to taxpayers where their tax residency changes back and forth, due to the impact of Capital Gains Tax (on their world-wide assets), even if there is no Income Tax implication.
On what income does this apply?
Since South Africa is on a residency tax basis you were always under an obligation to report your foreign income earned on investments, and this was taxable in South Africa. This hasn’t changed. The change came about in that foreign salary earned were exempt from South Africa Income Tax in most instances. The change is that only the first R1.25mil earned will now be exempt from South Africa Income Tax (in most instances). Taxpayers should also bear in mind that fringe benefits such as housing will also form part of the calculation of taxable income.
Will I end up paying tax in South Africa?
Even if you are South Africa Tax resident and earned salary abroad you may still in effect pay no tax on this income in South Africa. The first question to be answered is to determine if there is a double tax agreement between South Africa and the country in question. For income earned in a country such as the UK the double tax agreement determines that the salary is taxable in the UK and not in South Africa. If there is no double tax agreement in place, usually in the low/no Income tax countries such as the UAE, this salary earned abroad may have a tax impact in South Africa. But remember that at least the first R1.25mil earned will be tax free.
Must I submit a tax return in South Africa?
If you are a South Africa Tax Resident and earn income from abroad you must submit a tax return in South Africa and declare your worldwide income, even if there is no tax payable. Failure to do this may end up in SARS issuing administrative penalties. You should also register as a Provisional Taxpayer and submit provisional tax returns every 6 months.
Since this is a very technical determination taxpayers should obtain professional assistance in this regard. Obtaining incorrect advice may have a material financial impact on tax payers. If you need to set up a meeting to discuss your requirements please send an e-mail to email@example.com and I will be in contact directly.