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To ascertain whether you are a South African resident required to submit a tax returns to SARS declaring your foreign earnings, you need to comply with SARS Interpretation Notes three AND four. SARS recently updated these Interpretation Notes in order to give you a further guidelines as to whom is regarded as being South African residents. SARS Interpretation Note three deals with the concept of ordinarily resident. SARS Interpretation Note four sets forth a physical presence test. This test can only be applied once you have ascertained that you are not regarded an ordinarily resident of South Africa in terms of Interpretation Note three above. The physical presence test stipulates that an individual must be physically present in the Republic for the following periods (minimum) a period or periods not exceeding:
- 91 days in aggregate during the year of assessment under consideration;
- 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and
- 915 days in aggregate during the five preceding years of assessment.
If any one of the following criteria applies to you, you will be required to submit a tax return to SARS for that period:
- Your total remuneration/income before tax (gross income) from March 1 to February 28 did not exceed R350 000;
- You received your remuneration from one employer for a specific tax year;
- You have no car allowance/company car/travel allowance or other income (for example: interest or rental income); and
- You are not claiming tax related deductions (medical expenses, retirement annuity contributions other than pension contributions made by your employer, travel, and so on).
With effect from the 2018 tax year, all *expats are required to register as provisional taxpayers. Additionally, provisional taxpayers are regarded as residents whom receive income other than a salary, with the exception of the following exempt income scenario’s – earning:
- Interest less than R23,800 if you are under 65 years of age
- Interest less than R34,500 if you are 65 years and older
- Income from a tax-free savings account
*The term ‘expats’ refers to a South African resident earning a salary from a foreign employer, not registered with SARS.
- You need to declare your worldwide income to SARS.
- Ensure you have an income tax number.
- Income earned in foreign currency is coverted using SARS’ tabled methods. (see SARS’ Rates of Exchange)
- If you pay tax in a foreign country and can prove such, you will be entitled to a rebate on foreign taxes (see Interpretation Note 18)
- Similarly, if you pay withholding tax that is deducted from your salary and this withholding tax is recouped from your foreign employer, you will qualify for a deduction against your income (after exemption) of the withholding taxes paid during the tax year. This is usually happens in African countries where there is not a developed tax system in place.
- Should you pay taxes to a foreign country with which South Africa has a double taxation agreement/treaty/protocal/arrangement with, it is extremely important that the wording of that specific document is studied to ensure that you enjoy all the benefits available to you.
- Should you qualify for an exemption on your foreign income, this benefit is seen as being independent of a possible rebate benefit on foreign taxes already paid. The reason for this is the one is a rebate which you might qualify for, whilst the other one is an exemption which you might qualify for.
- The same relief is available to you as the remuneration received by SA residents employed by a foreign employer.
- Your employer is bound by law to deduct monthly employee’s tax from your salary and pay it over monthly to SARS. This is referred to as Pay-As-You-Earn (PAYE).
- Furthermore, your employer is required to submit an IRP5 annually to you and to SARS, indicting the remuneration earned abroad by using the foreign income codes on your IRP5 certificate.
- It is important that you (as the employee) verify whether the codes appear correctly on your IRP5 certificate and that the calculations of remuneration is done correctly.
- On assessment, should you comply with certain requirements, you will be able to get your taxes refunded up to the amount of days worked abroad. If you only worked abroad and not locally, you may qualify for a rebate on all taxes paid.
The exemption on foreign earned income, except to crew members (see Interpretation Note 34), is stipulated in Section 10(1)(o)(ii) of the Income Tax Act 58/1962, Interpretation Note 16. It is based on the premise of achieving the following periods of employment abroad:
- *183 or more days that either starts or ends in the tax year that you are seeking the exemption; as well as a continuous 60 day period, which forms part of the exact same 12 month period.
- Expats meeting the above requirements’ foreign earnings are exempt in full up to 28 February 2020.
* ‘183 days’ refers to 183 full 24-hour days.How your tax payable is calculated, effective from the 2021 tax year: Remuneration from foreign employer LESS: exemption R1 250 000.00 =INCOME LESS: medical aid contributions and expenditure not covered LESS: retirement annuity fund contributions =PRELIM TAXABLE INCOME LESS: normal rebates LESS: foreign taxes already paid in another country =TAXABLE INCOME, calculate tax to be paid based on SARS relevant tax tables.
CHANGE IN TAX LEGISLATION AS FROM MARCH 2020 The following provides an overview of SARS’ changes to the tax liability of employees earning in excess of R1.25 million on foreign income as from March 2012, which is the start of the 2021 year of assessment. For detailed practical implications of these changes to your tax compliance, please do not hesitate to contact us. Important factors: It applies to all South African residents that earn foreign income You need to be employed under an employment contract. Whether it is a short term contract or a permanent contract, as long as the wording states that you are an EMPLOYEE of the company and not a contractor. Some employers confuse the word contractor with employee and it is essential that when signing a new contract that the heading should be EMPLOYMENT CONTRACT and not INDEPENDENT CONTRACT. SARS typically considers the following to establish that a person is not an independent contractor:
- Is the person entitled to the same benefits as the other employees of this employer?
- Is s/he restricted in any way not to work with another employer at the same time?
- Does s/he you need to report to another person regarding work done, duties?
- Is the person’s working hours prescribed by the employer?
- Your 183 days are obtained from March to February the following year. You do not need to achieve 60 consecutive days. The definition of a bona-fide crew member is detailed in SARS interpretation Note 34.
- The tax payable will start at R1 that EXCEEDS R1.25 million Rands, which is effectively a 0% tax rate according to SARS Tax Tables. The rumours that you will be taxed at 45%+ on your excess of R1 million is not true.
- If you are already paying tax in a foreign jurisdiction, SARS will allow you either a credit on foreign taxes paid or alternatively a deduction, depending of the wording of the double taxation agreement or relevant agreement with the foreign jurisdiction
- It is important to note that with foreign taxes paid, the onus of proof is on you the taxpayer to provide SARS with proof of foreign taxes paid, as mentioned in Interpretation Note 18. Without this, SARS will not be able to give you any relief.