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SA tax residents working abroad still have tax obligations

By Amanda Visser

Many South Africans have a misconception that financial emigration equates to tax emigration. However, the official policy of the South African Revenue Service (SARS) is that approval by the South African Reserve Bank to emigrate from a financial perspective is no longer connected to an individual’s tax obligations or tax residence.

If South Africans remain tax resident in SA they have tax obligations, such as the obligation to file a tax return with SARS. Failing to do so may result in steep penalties.

Hugo van Zyl, tax and exchange control specialist, says the deciding factor on tax residency remains whether an individual is no longer “ordinarily resident” or “deemed treaty non-resident” for tax purposes because of provisions in the double taxation agreement between SA and the host country.

“The default position for South Africans working and living abroad is to file a tax return in SA until the taxpayer is declared inactive by SARS or is no longer required to submit a return.”

It is not that simple

South Africans who earn remuneration from a South African company while living abroad and earn income of less than R500 000 from a single source are obliged to file a tax return.

The individual may be auto-assessed by SARS and if he does not check the accuracy of the assessment, he could be paying employee’s tax on the amount despite it being exempt. The Income Tax Act allows for a tax exemption on foreign earned income up to R1.25 million.

The bottom line, says Van Zyl, is that all residents earning remuneration from services provided abroad need to file tax returns.

Deregistration fallacy

Van Zyl reiterates that someone who tax emigrated cannot simply consider himself to be “deregistered” from SARS. “I do not know where this idea comes from. It is just not true that ceasing tax residence automatically closes your tax number. All it does is it changes your classification of a tax resident to a non-resident taxpayer, but you remain a taxpayer.”

Once you have received the letter confirming your tax emigration, you still need to request SARS to make the tax number inactive. This is only possible if there is no South African sourced income such as rental, interest, dividend or pension fund pay-outs.

During a webinar hosted by The Tax Faculty towards the middle of last year, Van Zyl advised South Africans who believe that they are tax non-residents in SA to do their own independent residency test.

Things change

He explained how someone who thought he was non-resident ended up being tax resident in South Africa despite having cut all ties with the country. The individual had been living in Dubai for many years and had no permanent home available to him in SA. Suddenly his surviving parent died, leaving him a mansion in Cape Town.

The permanent home tie-breaker rule in the tax treaty between SA and the United Arab Emirates (UAE) failed since he now had a permanent home in both countries. The next test was to consider where his “centre of vital interests” was.

“He has a South African employer who could call him back at any time, and his ex-wife is living in SA with his children. To convince SARS that his centre of vital interests is in the UAE will be difficult.”

Auto-registration process

Towards the end of last year SARS started with an auto-registration process for people who should be registered for tax but were not. In this process people who were “inactive” found they were back on the register. This could be because of a stake in a property, or if they were a named beneficiary of a trust. Suddenly people were alerted to administrative penalties because of outstanding tax returns.

Van Zyl says South Africans abroad should take note that if they are a named beneficiary of a trust, a trustee, a director of an SA company, a member of a retirement fund or a part property owner in SA, it could trigger an SA tax event.

People should contact SARS when they are uncertain about their filing obligations since SARS may raise penalties even if only one year’s tax return is outstanding.

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