South Africans have always been keen to work and live abroad, and this trend looks set to strengthen as the country’s political and economic fortunes remain precarious.

A recent study shows that even with the rise of digital working, 59% of South Africans (56% of young people and 61% of highly educated people) are willing to relocate. But, says Thomas Lobban, Legal Manager for Cross-Border Taxation at Tax Consulting South Africa, working abroad creates a host of potential tax challenges for which a strategy must be developed.

“Most taxation challenges related to the expatriate life can be satisfactorily resolved but the right steps need to be taken from the beginning,” he says. “It’s never too early to speak to a tax consultant who understands the intricacies of expatriate taxation—it may be too late if you leave things to filing season.”

In terms of a new tax law effective from 1 March 2020, only the first R1.25-million of employment income earned in foreign countries may be exempt from tax in South Africa, provided that more than 183 days are spent outside the country in a 12-month period, and at least 60 of those days are continuous.

Any income above R1.25-million will be taxed in South Africa at the individual’s relevant marginal tax rate, but he or she may further be able to claim a proportional credit for taxes already paid in the foreign country on that income.

The overarching principle is that individuals (and corporations) should not have to pay tax twice on the same income or assets. To that end, South Africa has double taxation agreements with 83 countries (find a full list on the SARS website).

However, says Mr Lobban, what most people do not realise is that a double tax agreement does not just automatically kick in—this relief must be claimed, and the taxpayer must be prepared to provide the necessary evidence to back the claim up.

“Many people think they can simply decide where they are tax resident but, in truth, their status will be determined by the statutory and other criteria the tax authorities use to determine tax residency,” he explains. “It can often happen that an individual is deemed to be a tax resident of both South Africa and the other country.”

In that instance, a so-called “tie-breaker test” may be applied, in terms of which the circumstances of the taxpayer are considered in terms of various criteria. The first of these is where the taxpayer has a permanent home available that he or she can access at any time, and/or where his or her vital personal and economic interests are located.

If that is not conclusive, then the individual’s habitual abode over an extended period would be considered, and here the number of days spent in each place would be relevant. A final consideration would be nationality.

“SARS almost inevitably audits expatriate tax returns, and this year we are seeing a huge emphasis on expatriates along with high-net-worth individuals,” Mr Lobban concludes.

“Once the audit starts, the clock is ticking, so you need to have your plan and your evidence assembled well before filing season starts, or risk finding yourself paying much more tax than you expected or otherwise landing on the wrong side of SARS.”

Submitted by Tax Consulting SA