Tax filing for South African expatriates living overseas can be confusing process especially as the the tax deadline deadline is around the corner.
Consultant at Expatriate Tax, Tax Consulting SA, Mbalenhle Mahlaba, said that expats are uncertain about and have received conflicting advice about their tax obligations.
With the October 21, 2024 tax filing deadline just days away, it is crucial that SA expats understand whether they need to file a tax return with the South African Revenue Service (Sars).
Knowing your tax status
Mahlaba said that it is essential that expats determine whether they are a tax resident or a non-tax resident in the country, and whether this status is formally recognised by the authorities.
“This is vital, as the tax treatment of individuals varies significantly based on residency,” Mahlaba said.
“Tax residents are subject to tax on their global income, whereas non-residents are taxed only on income sourced from within South Africa, such as local employment, interest income or property rentals.”
Tax residents
According to Mahlaba, expats who are not eligible to cease their tax residency can claim an exemption of up to R1.25 million for employment income earned while they are physically working outside of SA, during any twelve-month qualifying period.
Mahlaba said that for tax residents to qualify for this exemption, they must demonstrate that they meet the criteria as stipulated under section 10(1)(o)(ii) of the Income Tax Act.
However, this foreign income exemption is only applicable to employment income.
Any foreign income that does not fall under the definition of employment income does not qualify for an exemption under section 10(1)(o)(ii) of the Income Tax Act and must therefore be evaluated accordingly.
Non-tax residents
It is important to note that it is still necessary for SA expats who have formally ceased their tax residency to file a tax return.
“For South African expatriates who have formally ceased their tax residency—either through a Double Taxation Agreement (“DTA”) or financial emigration (“FE”) it is still necessary to file tax returns,“ Mahlaba said.
According to Mahlaba, this is done to ensure compliance, as cessation of residency does not take away the obligation to file returns but rather to not disclose of foreign income.
“As such, it is important to submit returns declaring items such as South African sourced income such as local interest, local rental income and local rendered services,” Mahlaba said.
Compliance is key
The burden of proof is with the taxpayer therefore expats must ensure they provide accurate information to Sars, backed by supporting documentation.
Those who fail to file their tax return or update their tax residency status could be subjected to penalties or criminal sanctions.
“Given expatriate tax obligations can be complex, seeking professional advice is strongly recommended to avoid compliance risks and ensure all obligations are met effectively in the 2024 filing season,” Mahlaba said.
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