Taxes for Expats in South Africa

    Your complete guide to expat tax in South Africa:

    Tax rates

    2017/2018 income tax rates

    Taxable Income Band ZAR National Income Tax Rates
    0 – 189,880 18%
    189,881 – 296,540 26%
    296,541 – 410,460 31%
    410,461 – 555,600 36%
    555,601 – 708,310 39%
    708,311 – 1,500,000 41%
    1,500,001+ 45%

     

    Spouses generally are taxed separately.

    Taxable income is gross income, less exempt income and allowable deductions.

    Gross income from employment includes all remuneration in cash or in kind, including bonuses, allowances and taxes reimbursed or paid on the employee’s behalf.

    Dividends from South African companies are exempt from income tax but will be subject to dividends tax at a rate of 15%.

    The tax on lump sums received from a pension, provident or retirement annuity fund is calculated differently, depending on whether the payment is a result of resignation, withdrawal or retirement.

    Subject to certain restrictions, deductions are granted for contributions to pension and retirement annuity funds, certain donations and travel and motor vehicle expenses.

    Deductions for medical expenses have been converted to medical tax credits.

    Social security in South Africa:

    The employer must contribute the equivalent of 1% of gross income (up to a capped amount) for each employee, plus a similar 1% deduction from the employee, to the Unemployment Insurance Fund.

    The tax year for individuals ends on the 28th of February.

    Tax returns must be filed by a date published by the SARS.

    Tax on employment income is withheld by the employer under the PAYE system and remitted to the tax authorities.

    Income not subject to PAYE is self-assessed, and individuals must make tax payments at six-monthly intervals during the tax year, and a final payment six months after the tax year.

    Penalties and interest apply for failure to comply with certain tax obligations, according to the Tax Administration Act.

    Who pays

    Who pays tax in South Africa?

    South African residents are taxed on worldwide income.

    Nonresidents are taxed on South African-source income and on capital gains from the disposal of immovable property and assets of a permanent establishment in South Africa.

    South Africa is currently considering taxing non-resident South Africans on their worldwide income.

    An individual is resident if:

    (a) “ordinarily resident” in South Africa, or

    (b) physically present in South Africa for more than 91 days in the current tax year, and in each of the preceding five tax years, and physically present in South Africa for a period exceeding 915 days in the aggregate in those preceding five tax years.

    This excludes a person who is deemed to be exclusively resident in another country for purposes of the application of a tax treaty between South Africa and such other country.

    Expats resident in South Africa are subject to tax on their worldwide income.

    Non-residents are currently subject to tax on income from a South African source or from a source deemed to be South African.

    The source of remuneration is generally the rendering of services and is located where those services are rendered.

    In practice, short-term visits of fewer than three weeks do not generally result in South African tax liability if the individual's presence in South Africa is incidental to continuing employment elsewhere, and if the income falls below the annual tax threshold.

    Under existing law, income tax becomes payable if an individual earns more than ZAR73,650 per year with expat tax rules applicable above this threshold.

    How it works

    How is income taxed in South Africa?

    Expatriate tax advice on employment income  - The basis of employee taxation is remuneration, which consists of salary, leave pay, allowances, wages, overtime pay, bonuses, gratuities, pensions, superannuation allowances, retirement allowances and stipends, whether in cash or otherwise. These payments, together with the cash value of any fringe benefits received, form part of the gross income of an employee.

    Remuneration from employment on extended absences outside South Africa is exempt from tax if the employee is outside South Africa for an aggregate of more than 183 full days in any 12-month period beginning or ending in the tax year, and for at least one continuous period exceeding 60 full days during the same 12-month period.

    For expat tax residents, any amount received or accrued under the social security system of another country or any pension received from a non-South African source (and not deemed to be from a South African source) in consideration of past employment outside South Africa is exempt from tax. Expat pensions with respect to services within and outside South Africa can be apportioned.

    Self-employment and business income - Professional fees paid to non-residents are subject to employee withholding tax (if from a South African source), even if the non-resident is an independent contractor.

    Effective from 1 January 2016, a 15% withholding tax will be imposed on service fees paid to non-residents. For purposes of this tax, service fees will be amounts received for technical, managerial or consulting services.

    Business losses of a self-employed person may be carried forward indefinitely if the trade is continued. No loss carry backs are permitted.

    Investment income - Foreign dividends on holdings of less than 10% that are paid to residents are taxable, subject to the provisions of an applicable double tax treaty. Credit for foreign tax paid may be available. Foreign dividends paid on greater holdings are exempt.

    Domestic dividends are subject to a final withholding tax at 15%.

    Royalties paid to non-residents are subject to a final 15% withholding tax.

    For residents, South-African source interest up to a cumulative ZAR23,800 (ZAR34,500 for individuals older than 65 years of age) is exempt from normal income tax. Foreign-source interest is subject to income tax.

    Converse to previous expat tax rules, the general exemption for non-residents no longer applies to bank interest and interest on government securities. Non-residents qualify for a specific exemption from normal income tax on their South African-source interest if they are physically absent from South Africa for a period exceeding 183 days and if they do not carry on business in South Africa (employment is not a business for these purposes) at any time during the 12-month period preceding the date on which the interest is received by or accrued to that person.

    A final withholding tax of 15% is imposed on South Africa-source interest paid to non-residents, subject to a reduction in the rate in accordance with double tax treaties.

    Anti-avoidance legislation restricts spouses from splitting their investment income to reduce their tax burden.

    Taxation of employer-provided stock options and other incentive plans requires specific expat tax preparation with professional expat tax help.

    DTAs

    Taxes for expats in South Africa: Double tax relief and tax treaties

    In the absence of treaty provisions, unilateral relief (in certain circumstances) is available on foreign-source income in the form of a credit for foreign taxes paid, limited to the lesser of the actual foreign tax liability and the South African tax payable on the foreign income.

    Expat tax rules rest upon the following:

    Double tax treaties with 71 countries.

    Negotiating tax treaties with a further 46 countries.

    Residency

    Expat tax advice on residency

    An expat is regarded as a resident for tax purposes under either the ordinarily resident rule or the physical presence rule. Under the ordinarily resident rule, an individual is regarded as resident in South Africa if South Africa is the place, considering all personal and financial circumstances, to which the individual would naturally return from his or her travels, and that is the individual's real home.

    When considering expat tax advice, the physical presence rule applies if the individual is not ordinarily resident at any time during a particular year, but is physically present for more than 91 days in the relevant year and is physically present for an aggregate of more than 915 days in the preceding 5 years (that is, effectively an average of 183 days per year) and for a de minimis period of more than 91 days in each of those preceding years. For purposes of determining the 91-day and 915-day periods, a partial day counts as a full day. If an individual is physically outside South Africa for a continuous period of at least 330 full days after the day of last physical presence, under the physical presence rule that person is not resident for the entire period of continuous absence.

    An expat cannot be treated as a South African resident for tax purposes if he or she is considered to be a resident of another country under the "tiebreaker" rules of a double tax treaty applicable to the relevant income item.

    Estate tax

    Do I have to pay estate and gift tax?

    Estate duty is payable at a rate of 20% on the worldwide net estate of an individual who dies while ordinarily resident in South Africa, with a standard deduction of ZAR 3.5 million per estate.

    Certain other deductions are allowed, the most important of which is the deduction for assets accruing to a surviving spouse.

    Estate duty also is payable on the net South African-situated estate of a person who dies while not ordinarily resident in South Africa.

    The same deductions and exemptions are applicable.

    A donations tax is payable where a resident donor donates property valued in excess of ZAR 100,000 in the aggregate per annum.

    The tax is levied at a rate of 20% on such excess, and is payable only if the donor is an individual resident in South Africa.

    Certain donations are exempt from donations tax, including donations between spouses and donations to approved public benefit organisations.

    Finally on this point, do not assume that just because you've expatriated to live in South Africa that your estate will not be liable to inheritance tax (IHT) in your old home nation, or any nation where you hold assets.  For example, those domiciled in Britain remain liable for IHT on their worldwide estate.

    If you are concerned about mitigating your IHT liability, we'd like to offer you a free initial consultation to determine whether we can help you.

    CGT

    Do I have to pay capital gains tax?

    Capital gains are taxable in South Africa. Capital gains tax (CGT) is imposed through the income tax system by including a proportion of the calculated gain in taxable income. For residents, CGT applies to capital gains derived from the disposal of worldwide tangible and intangible assets.

    Non-residents are subject to CGT on capital gains derived from the disposal of real estate held directly or indirectly through a company or trust (if 80% of the value is attributable to real estate), or the assets of a permanent establishment in South Africa. A deemed capital gain arises on the loss of expat tax resident status.

    For individuals, a ZAR30,000 annual exemption of capital gains or reduction in capital losses is allowed. Only 33.3% of capital gains (after the exemption) is taken into account for CGT purposes and the date of disposal is crucial. Consequently, specialist tax advice for expats is recommended to calculate CGT liability.

    State pension

    Do expats get a State pension?

    Limited unemployment insurance and accident or illness benefits are provided.

    The Unemployment Insurance Fund provides benefits to unemployed people and to dependants of deceased contributors. Employers and employees each contribute to the fund at a rate of 1% of the employee's remuneration up to the transition limit (currently at ZAR178,464). 

    Expat tax advice, regarding social security, would focus on the following: a person who enters South Africa for the purpose of carrying out a service contract does not fall within the scope of the fund if, on termination of the contract, the employer is required by law or by contract to repatriate the person.

    Finally...

    We believe the above information is accurate, however tax rates and rules can change, and we are NOT tax experts. Therefore, please do not rely exclusively on the information to determine your liability for tax.

    Speak to a local tax expert for personalised advice, or consult an international taxation consultancy.

    If you'd like our help to source someone to assist you, please get in touch and we will do all we can to help.

    Relax, and join the 10,000 other international investors who have made the smart decision to let us help.

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