Income outside of South Africa from 1 March 2020

First published by worldwidetax.co.za

Final Version:- On 6 March 2019, National Treasury confirmed that the repeal on Section 10 (i)o(ii) will go ahead and amended section as tabled out in December 2017 will be implemented from the 1st March 2020 which affects your 2021 tax return submission from July 2021. This means that you will still need to complete the 183 days out the country and in the 183 days 61 days must be consecutive. This exemption period will exclude any travel days you have done into and out South Africa. Your exemption period can be done in any 12 months of the year and does not have to be in the tax year from March to February. Once this requirement is completed, your first million rand will be exempt from South African income tax. However any income over and above the million rand may be subject to income tax in South Africa
Your remuneration will include your basic salary, allowances and fringe benefits accrued to you during that exemption period. You will prove your salary in the form of payslips, employment contracts and bank statements. Due to foreign exchange that will need to be considered, we recommend that you utilize the WWTS Offshore Tracker Report to detail your foreign income, foreign taxes and date of payments.

SARS will set up a dedicated head office function that will deal with matters pertaining to the amendment, this will still need to be confirmed.

The above amendment only applies to Section 10 (i)o(ii), therefore Section 10(i)o(i) and Section 10 (i)o(iA) remain the same.

Options to consider:
The South African tax system is based on your residency status. Therefore you need to apply the following tests to determine if you are a tax resident or not. This will determine if you are required to submit your foreign income on your South African income tax return
Please note citizenship and residency are two different tests, and your residency tests are based on the number of days you are present in a country
When assessing whether a natural person is ordinarily resident in the Republic, the following factors will be taken into consideration:
• An intention to be ordinarily resident in the Republic
• The natural person’s most fixed and settled place of residence
• The natural person’s habitual abode, that is, the place where that person stays most often, and his or her present habits and mode of life
• The place of business and personal interests of the natural person and his or her family
• Employment and economic factors
• The status of the individual in the Republic and in other countries, for example, whether he or she is an immigrant and what the work permit periods and conditions are
• The location of the natural person’s personal belongings
• The natural person’s nationality
• Family and social relations (for example, schools, places of worship and sports or social clubs)
• Political, cultural or other activities
• That natural person’s application for permanent residence or citizenship
• Periods abroad, purpose and nature of visits
• Frequency of and reasons for visits

The above list is not intended to be exhaustive and is merely a guideline.
The circumstances of the natural person must be examined as a whole, taking into account the year of assessment concerned and that person’s mode of life before and after the period in question. It is not possible to specify over what period the circumstances must be examined. The examination must cover a sufficient period in the context of the specific case for it to be possible to determine whether the natural person is ordinarily resident in the Republic. The conduct of that person over the entire period of examination must receive special attention.

Briefly, ordinary residence is the place where a natural person has his or her usual or principal residence, what may be described as his or her real home. Whether a natural person is ordinarily resident in the Republic is determined based on that person’s particular facts. A natural person who was previously not resident and who becomes ordinarily resident in the Republic, will be liable to tax on worldwide income as from the date that he or she became ordinarily resident.

resident” means any—
(a) natural person who is—
(i) ordinarily resident in the Republic; or
(ii) not at any time during the relevant year of assessment ordinarily resident in the Republic, if that person was physically present in the Republic—
(aa) for a period or periods exceeding 91 days in aggregate during the relevant year of assessment, as well as for a period or periods exceeding 91 days in aggregate during each of the five years of assessment preceding such year of assessment; and
(bb) for a period or periods exceeding 915 days in aggregate during those five preceding years of assessment,

Based on the above tests, if you are considered a SA resident you will be subject to taxes in SA on your worldwide income and assets

Cease to be a SA Tax Resident
Where a person who is a resident in terms of the above paragraph is physically outside the Republic for a continuous period of at least 330 full days immediately after the day on which such person ceases to be physically present in the Republic, such person shall be deemed not to have been a resident from the day on which such person so ceased to be physically present in the Republic

Financial Emigration
If you want to formalize your emigration status and you have officially relocated out of South Africa, you can apply for financial emigration. This application is done through SARS and the South African Reserve Bank.
Upon emigration, your worldwide assets (excluding South African property), will be subject to capital gains tax known as the Exit Charge. You are not required to sell your assets however you will need to disclose your assets. Should you relocate back to South Africa within 5 years after you have emigrated, this may be regarded as an unsuccessful emigration and SARS can go back and assess your worldwide income for income tax. Once you have emigrated, you can only return to South Africa for less than 91 days in each of the first 5 years so that you meet the non-residency requirements. You bank account will be disclosed as a capital account known by the banks as a blocked account, which means that any transactions through your South African bank account can only be done manually by your bank. You will not have access to internet banking and all your credit cards will need to be paid and closed. Note, you will still be allowed to maintain your South African Home Bond even after emigration.
Your properties in SA are not included in the exit charge capital gains tax calculation, however once you relocate and your residency status has changed to non-resident, then you are subject to withholding tax when you do sell your SA property at the following rates:
Where a non-resident disposes of immovable property in South Africa in excess of R2 million, the purchaser is obliged to withhold the following taxes from the proceeds (unless a directive to the contrary has been issued) at 7.5% on the selling price for an individual
Your intention to relocate must be long term in order for your financial emigration to be successful. Should you have a short-term/limited or contractual work commitment outside SA, you need to apply the Dual Treaty Agreement between South Africa and the country you are working in. You will need to apply for a residency certificate. Each country has their own individual treaty agreements with South Africa.

Worldwide Tax Solutions are able to complete your Financial Emigration Application for you with SARS. Please contact us for a free quotation

Dual Treaty Agreements
DTAs or tax treaties, as they may be referred to, are international agreements between the governments of two jurisdictions aimed at eliminating double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. Most tax treaties typically include the following broadly defined sections:
• A preliminary part on the scope of the tax treaty, for example, setting out the taxes on income and capital covered in the tax treaty and defining terms used.
• The main part of the tax treaty that settles the extent to which each of the contracting jurisdictions may tax income, that is determined based on the different types of income and whether the jurisdiction is a source jurisdiction or resident jurisdiction. It further determines how double taxation are to be eliminated.

The DTA permits a mutual agreement procedure (MAP) for resolving difficulties arising from the application of a particular Article in DTAs in the broadest sense of the term.

It basically authorizes the Competent Authorities or their designated representatives to communicate with each other directly, for the purpose of resolving the matters that might be brought before them.
Please find attached a summary of DTA agreements with SA. Upon request, we can forward you the copy of the DTA with SA and the country you are currently employed in.

Based on the above options, we will need to look at your Salary and Tax Structure taking into consideration your worldwide income, assets and residency status to provide you with the best and most tax efficient option applicable to your situation. We will need a breakdown of your salary, foreign taxes paid, number of days in SA in the last 5 years, have you remained out of SA for 330 consecutive days and do you meet the ordinary residency tests. Worldwide Tax Solutions can then advise you of the tax route that will apply to you so that you are not negatively affected by the looming March 2020 exemption law

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