South African Expat Tax—Laws and Exemptions

In this guide, we’ll outline everything you need to know about South African expat tax, including rules, regulations, tax residency laws, and double taxation agreements.

How Does Expatriate Tax in South Africa Work?

Many South African expats assume they are exempt from South African tax obligations while living and working abroad, However, under the South African expat tax law introduced in 2020, South African tax residents earning over R1.25 million in foreign income are subject to an income tax of up to 45%.

Since expat taxation in South Africa is based on your residency status, you’ll be taxed on your worldwide income if you’re considered a resident of South Africa for tax purposes. Conversely, non-residents are taxed only on income sourced within South Africa. Understanding your tax residency is essential to ensuring compliance and optimising your tax obligations.

How To Determine South African Tax Residency?

The South African Revenue Service (SARS) assesses each expat’s tax residency on a case-by-case basis, relying on established case law rather than statutory legislation. This means your residency status is determined by comparing your circumstances to similar past cases.

To determine whether you qualify as a South African tax resident, two key tests apply:

1. Ordinarily resident test.
2. Physical presence test.

Ordinarily Resident Test

You are considered an ordinarily resident of South Africa if you have lived and worked abroad but intend to return at some point. Key factors include:

• Do you plan to retire in South Africa?
• Is your primary home in South Africa?
• How much time do you spend in South Africa each year?
• Where do you spend most of my time?
• Where is my place of business?
• Where is your main bank account?
• Where does your family reside?
• Do you require a work permit abroad?

Remember the ordinarily residency test is subjective, and SARS evaluates each case individually. If you plan to return to South Africa and are concerned about your tax liability, Titan Wealth International offers repatriation services to simplify this process.

Physical Presence Test

The physical presence test determines tax residency based on the number of days you have spent in South Africa during the tax year under assessment and the previous five tax years. You are an SA tax resident if:

1. You spent 91+ days in South Africa during the current tax year.
2. You spent 91+ days in South Africa in each of the past five years.
3. You spent 915+ days in South Africa over the last five tax years.

Failing to meet these criteria means you are classified as a non-resident for tax purposes. However, if you have been outside of South Africa for 330 consecutive days, you will cease to be a tax resident from the first day of your absence.

Understanding your South African tax residency is crucial for ensuring compliance and optimising your tax obligations as an SA expat.

South African Tax for Expats Based on Tax Residency Status

The amount of tax you should pay in South Africa on both your South African and foreign income depends on your tax residency status. The following applies based on whether you are a South African tax resident or non-resident:

Is There an Expat Tax Exemption in South Africa?

The taxation of South African expatriates depends on your tax residency status. Depending on your circumstances, you may qualify for tax relief under the following provisions:

1. Foreign employment income.
2. Double taxation agreement.
3. Foreign Tax Credit.

Foreign Employment Income

Under the new expat tax law in South Africa implemented in March 2020, you may qualify for an exemption on foreign employment income if you meet the following criteria:

1. You spent at least 183 days outside of South Africa within a 12-month period.
2. Of those 183 days, you spent at least 60 consecutive days outside South Africa.
3. You earn a salary as an employee (self-employed individuals do not qualify).

However, this exemption only applies to the first R1.25 million of your foreign employment income per tax year. Any income above this threshold will be taxed at South Africa’s marginal tax rates. If you also earn an income in South Africa, both your local and foreign earnings will be combined and taxed accordingly.

The R1.25 million exemption covers:

• Your basic salary.
• Bonuses.
• Allowances.
• Commissions.
• Gratuities.
• Fringe benefits.

Double Taxation Agreement

South Africa has double taxation agreements (DTAs) with 81 countries, including the United Kingdom, United States, United Arab Emirates, and Australia. These agreements prevent you from being taxed twice on the same income by determining which country has the right to tax your earnings.

If you’re a tax resident in both South Africa and another country, a DTA may reduce or eliminate your South African tax liability on foreign income. To claim relief under a DTA, you must:

1. Declare your foreign income to the South African Revenue Service (SARS) every year.
2. Prove your non-residency status by obtaining a tax residency certificate from the country where you live.

Since DTAs only apply to non-residents of SA, SARS will ask you to prove your non-residency by obtaining and presenting a residency certificate from a foreign jurisdiction.

Foreign Tax Credit

If you’re a South African tax resident earning income abroad and your country of residence does not have a DTA with South Africa, you may be able to claim a Foreign Tax Credit (FTC) to offset double taxation. This relief can be applied in two ways:

1. Tax rebate/redit: A foreign tax credit against your South African tax liability.
2. Tax deduction: A reduction in your taxable income before South African tax is calculated.

A tax rebate generally provides more relief, as it directly reduces the tax you owe, whereas a deduction only lowers your taxable income. However, you can’t choose which applies—SARS will determine this based on the source of your income.

Key Considerations for South African Expats

• South African tax law defines income sources in complex ways, which can sometimes result in foreign income being considered South African-sourced and subject to local tax.
• If you don’t properly declare your income, SARS may impose penalties—even if you’re eligible for tax relief.
• It’s highly recommended to seek professional expat tax advice to ensure compliance and maximise the relief available to you.

Does Financial Emigration Affect South African Tax Law for Expats?

Financial Emigration was previously a formal process South African expats could undertake if they wanted to break their SA tax residency status. Its purpose was to change their status to being an SA non-resident for the purpose of taxation and exchange control.

Exchange control regulations determine how much money South African residents can transfer abroad under specific conditions. The Financial Emigration process involved three key steps:

However, as of March 2021, Financial Emigration no longer serves as a method to cease South African tax residency or exempt foreign-earned income from South African taxation.

If you wish to break your South African tax residency, you must now follow SARS’s tax residency cessation process, which requires proving that you no longer meet the criteria for ordinary residence or physical presence in South Africa.

What Are the SARS Expat Tax Implications of Breaking Your Residency Status?

If you no longer meet the criteria of the ordinarily resident test, you will be classified as a non-resident for South African tax purposes. When this occurs, you will be subject to Capital Gains Tax exit tax, as SARS requires you to deem all your South African assets (except immovable property) as disposed of at market value on the day before your tax residency ceases.

Capital Gains Tax on Exit

This deemed disposal means that you will need to pay CGT on the gain from these assets, even if you have not actually sold them. The proceeds from these deemed disposals are expected to be settled using your liquid assets.

Some of the key assets subject to CGT upon exit include:

• Investments (e.g., unit trusts, ETFs, REITs).
• Shares (both local and offshore holdings).
• Collectibles and artwork.
• Krugerrands and gold coins.

Before making the decision to break your South African tax residency status, it is essential to receive professional South African expat tax advice. A South African expat tax expert can help you:

• Assess your residency status and tax implications.
• Structure your exit in a tax-efficient manner.
• Minimise unnecessary tax liabilities.
• Ensure full compliance with SARS requirements.

Breaking tax residency is a significant financial decision. Professional guidance will help you navigate the complexities and avoid unexpected tax burdens.

Navigate South African Expat Tax With Confidence

Understanding your tax obligations as a South African expat can be complex, especially if you’re planning to return to SA. Without the right strategy, you may face unexpected tax liabilities on your foreign income, capital gains, or estate.

At Titan Wealth International, we provide expert expat tax planning and repatriation services to help you:

• Determine your tax residency status and how it impacts your global income.
• Maximise tax exemptions and relief to avoid unnecessary double taxation.
• Structure your finances efficiently to protect and grow your wealth before, during, and after your return to SA.