South African expatriates who ignore their tax obligations will soon find themselves in hot water with the South African Revenue Service (SARS) warns Jashwin Baijoo, legal manager at Tax Consulting South Africa.
Baijoo said these expats need to urgently review their compliance status with an expatriate tax specialist or risk a major personal financial crisis and even jail time.
This is especially true of those working in African countries, who might blindly assume they are free from taxation because of a dual tax agreement that nation has with South Africa, he said.
“Legally, every South African, no matter where they are on the planet, must declare their annual worldwide income to SARS and pay tax on those earnings for the rest of their lives,” said Baijoo.
“While in the past, expatriate income was largely exempt from taxation, from 1 March 2020, their earnings above R1.25 million are subject to tax of up to 45%.”
In addition, if an expatriate working in Africa is a businessperson, self-employed or works for a foreign company, they become a provisional taxpayer, he said.
“A provisional taxpayer is any person who earns income from a source other than employment with an employer registered for South African PAYE,” says Baijoo.
“If so, they must declare their estimated annual income upfront, paying half their tax by 31 August and the balance by 28 or 29 February the next year.”
Dual tax agreements
Baijoo said that African countries have dual tax agreements with South Africa to ensure expatriates are not taxed by both governments.
However, this does not free them from declaring their annual income to both SARS and that nation’s tax authority. Also, if the tax in that country is less than what would have been paid in South Africa, they may have to pay the difference to SARS.
Each country’s dual tax agreement differs in its requirements, again suggesting that the assistance of an expatriate tax specialist is critical.
“Most cases we handle are a result of bad tax planning by those who are neither knowledgeable about nor qualified for the complexities of expatriate tax.”
“Unfortunately, a recent change to tax law means that even expatriates who were simply negligent in their declarations could still spend up to two years in prison for their oversight.”
It is also dangerous to believe, as one could in the past, that SARS will never find out about hidden income, Baijoo said.
The South African government recently provided SARS with R3 billion to boost its auditing and tracing capabilities using advanced technologies like artificial intelligence (AI).
The tax authority also participates in financial information sharing with many other countries as part of a global effort to reduce tax fraud and money laundering.
“The fact is, SARS is gaining incredible power to detect non-compliance through third-party data and is rapidly closing in on delinquent taxpayers,” he said.
R400 billion stashed overseas
In April, SARS commissioner Edward Kieswetter announced that the tax collector will focus on an estimated R400 billion stashed in accounts overseas.
Kieswetter said that South Africa has an automatic exchange of information protocol with about 160 countries – with actual data received from 87 countries.
“From those countries, we have become aware that we have around 1.38 million reportable records that we have received for the reporting period 2019.
“(These records) indicate to us that there is an amount of about R26.6 billion held in offshore accounts only from these 87 countries. That’s how we get to the amount of well over R400 billion – it’s a simple translation, depending on the exchange rate on the day.”
These comments should be a warning for South Africans who have assets overseas to get their affairs in order, says Reinert van Rensburg, specialist at Tax Consulting SA.
“Under the Automatic Exchange of Information (AEOI) agreement, which SARS signed up for in 2014, SARS now automatically receives all the information it needs regarding the foreign revenue streams of South African tax residents.
“This information includes the individual’s name, tax reference number, account number, account balance and the income generated from the account. It is the very access to this detailed information that has awakened SARS to the reality that R400 billion is currently held offshore by South African taxpayers,” he said.