SA Ordinary Residence Tests:

It’s a common misconception that if a South African is living and working overseas they do not have to pay any South African income tax on their earnings. Although some overseas income may be exempt in terms of the Income Tax Act, it must be remembered that if you are classified as a South African resident you will be liable for tax on your overseas income.

A person will be treated as a resident for tax purposes if they are either ordinarily resident in South Africa, or if they meet the criteria of the physical presence test.

The ordinary residence test takes into account various factors in order to establish the country that would most accurately be described as the individual’s real home.

The physical presence test looks solely at the number of days spent in South Africa over the previous five years. A person will be treated as an SA resident when they meet all of the following criteria regarding the number of days spent in South Africa:

91 days in total during the current year of assessment; and
91 days in total during each of the previous five years of assessment; and
915 or more days during the previous five years of assessment

When is income exempt from South African tax? Foreign income earned by a tax resident will be exempt from South African tax if the person works as a crew member or officer of a ship which is engaged in the transport of passengers overseas, or in the prospecting, exploration or mining for any minerals from the seabed outside of South Africa. This exemption will only apply if the person was outside of SA for a total of more than 183 full days during the tax year. In addition, any salary earned by a South African for services rendered outside of SA on behalf of an employer will be exempt – if that person was outside of SA for more than 183 full days (including a continuous period of 60 days) during any 12-month period that started or ended during the year of assessment. This exemption does not apply to income made through contracting, which would be fully taxable. National Treasury has had its eye on this exemption since 2017 with the initial aim being to repeal it fully. The main reason provided for this proposed amendment was to curb situations of double non-taxation of foreign income such as when an individual’s employment income was not being taxed in either SA or the foreign country.

R1 million exemption The current proposal by National Treasury to repeal the exemption fully has now softened slightly, and from March 2020 (expected implementation date) the first million earned by a person who meets the criteria for exemption will be exempt, and any income earned above this will be taxed at the normal rates applicable to individuals. The individual will also be entitled to reduce their resultant SA tax liability by offsetting some or all of their foreign tax paid where applicable. Many SA residents have considered leaving SA to escape the tax net – but for a person who formally emigrates or ceases to be a tax resident, there may be significant capital gains tax implications. The person will be seen to have sold all of their assets, with the exception of immovable property situated in South Africa, at market value on the date they ceased to be a resident and will therefore be liable for tax on the resultant capital gain on those assets. Regardless of whether a person is considering a permanent or temporary move to pursue overseas work opportunities, it is worth discussing the idea with a tax consultant. These factors can then be included in the decision-making process and help to avoid any nasty surprises from Sars.

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