Tax warning for any South Africans moving abroad
South Africa’s tax base continues to increase, but many South Africans living abroad are at risk of being taxed by two different authorities.
South Africa’s income tax base continues to grow, growing from 25.9 million in 2023 to 27.2 million in 2024.
However, over 38,000 individual taxpayers formally ‘tax migrated’ between 2017 and 2023.
The number of taxpayers reporting taxable income of zero or less has also risen by over 550% over the past decade.
“These numbers highlight two parallel realities,” said Lance Lawson, Business Development Consultant at Sovereign Trust (SA).
“On one hand, more South Africans are registering as taxpayers, but on the other hand, we’re seeing large numbers reporting no taxable income at all, often because they’re working abroad, earning foreign income, or caught in a grey zone between jurisdictions.”
This has increased questions over dual residency, as well as the use of tiebreaker tests.
South Africa’s residency-based tax system means that tax residents are taxed on their worldwide income, while non-residents are only taxed on income sourced from South Africa.
Problems arise when an individual or company is treated as resident in more than one country under each jurisdiction’s domestic law.
South Africans are thus at risk of being taxed on the same income twice.
“Dual residency is more common than many people realise. It is not only expatriates who have emigrated permanently,” said Lawson.
“It could be a professional who spends eight months abroad but still returns to South Africa each year, or a South African owning a business incorporated offshore.”
Tax residency for individuals in South Africa is determined either by being an ordinary resident or by meeting the physical presence test.
Ordinary residence is assessed case-by-case, based on a where a person’s true home and life interests are centred.
When that fails, SARS applies the physical presence test. This generally results in an individual being considered a non-resident if they remain outside the country for a period of 330 days.
When one breaks residency, this usually triggers an exit tax, including a deemed disposal of worldwide assets for capital gains tax purposes.
An alternative is to give SARS a tax residency certificate from another country, supported by the necessary documentation.
The process can often be harder for companies, with residency hinging on either incorporation in South Africa or the location of their place of effective management. Multinationals will often face issues when these criteria differ across jurisdictions.
What a Double Taxation Agreement is
Double Taxation Agreements (DTAs) are designed to stop the same income being taxed twice.
Most tax authorities follow the OECD Model Tax Convention, which includes tiebreaker rules to assign residency to one country.
“These treaties look at factors such as where an individual has a permanent home, where they habitually reside and where their personal and economic ties are strongest,” said Lawson.
“For companies, the key test is usually the place of effective management.”
A tiebreaker is applied via a Mutual Agreement Procedure between the two tax authorities if residency cannot be established in the initial tests.
Taxpayers will require residency certificates from both jurisdictions to start the process.
Taxpayers have also been warned that using assumptions is incredibly risky, as it can result in heavy costs.
“We see many South Africans abroad filing nil returns to SARS while declaring income in another country.”
“They assume this avoids double taxation, but without checking the DTA or securing the right residency status, they could be exposing themselves to penalties or back taxes.”
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