South African Expats – Tidy your taxes

A guest article by Stuart James of Tax Smart Solutions

Are you South African and working on the Isle of Man?

If so, this article could be relevant to you. The South African tax system is all about to change for those South Africans earning their income outside of its borders from March 2020.

Whilst many South Africans have left the ‘Mother Country’ and now consider the Isle of Man their permanent home – the South African Revenue Service (SARS) may see things differently.

The new tax laws that are coming into effect have 2 main objectives:

  1. To increase the tax base for SARS by bringing an end to what they deem ‘double non-taxation’. In essence this is by raising a tax against South African ‘expats’ who are deemed tax resident and earning over 1 million rand per year.
  2. To get individuals to ‘tidy up’ their tax affairs. Many South Africans simply left South Africa and have never completed tax returns, formalised their tax emigration or in some cases have filed nil returns.

Here’s our list of the 10 things we think you need to know about the South African expat tax 2020:

  1. South Africa has always taxed on worldwide income (since 2001) but the exemption of 183 days out of South Africa each year has seen no tax due to the South African Revenue Service (SARS). This exemption comes to an end in February 2020 that now means you will be in a position where tax could be due back in South Africa.
  2. The exemption that is currently in place is one that should have been applied for annually by submitting a tax return. The tax return should not have been a nil return but one divulging your income abroad and proving you were outside of South Africa for the pre-requisite period of time – 183 days per year, 60 of which were continuous.
  3. In light of the loss of this exemption SARS have granted a concession to ‘lessen the blow’ by allowing the first 1 million rand per annum to not be taxed in South Africa. After this your income, including benefits will be taxed according to South Africa Tax Tables if you are deemed to be tax resident. Although note you must still meet the 183 / 60 day ruling to qualify for this.
  4. Despite common opinion leaving South Africa and closing all bank accounts, selling property and all assets etc. is not formal tax emigration. It will, in other words, mean that just because you have taken these actions you will not be deemed non tax resident.
  5. After March 2020 if your tax bill on the Isle of Man is less than it would be in South Africa you could be taxed the difference.
  6. You cannot escape SARS, South Africa has signed up for CRS, the ‘Common Reporting Standard’. Therefore they have access to almost every bank account globally that belongs to a South African citizen.
  7. SARS will decide your residency status by carrying out a Physical Residency Test and an Ordinary Residency Test. Most South Africans on the Isle of Man will pass the Physical Residency Test of 91 days out of South Africa in the current year, 91 days out of South Africa in the previous 5 and 915 in total over the 5 year period. However, the Ordinary Residency Test will be more difficult to pass.
  8. The Ordinary Residency Test is not based upon one single factor but on a combination of things. It’s basis comes from a 1920’s court ruling where the judge stated ordinarily residence is based on a combinations of things and it was to where you will return when you stop your wanderings.
  9. In reality most South Africans on the IOM will not be be deemed tax resident – however a great many do need to carry out some remedial work that needs to be done along with formal tax emigration (please do not confuse this with financial emigration which is a totally different process). However that said there is not a one solution meets all.
  10. Not taking action is not an option unless you wish to risk large penalties (up to 100% of tax due) and an increased tax burden.

One of the key things that needs noting, is that by the time the new law comes into effect SARS will have given people 3 years warning of the changes. This is almost unprecedented and therefore it cannot be argued that individuals have not been given sufficient time to carry out remedial work and plan their tax.

For those wishing to know more please either contact Stuart via email on stuart@tax-smart-solutions.co.za or by telephone + 27 (0) 823 257028.

You can also visit the Tax Smart Solutions website by clicking ‘here‘.