Working overseas can often lead one to being caught out with unpaid tax. Whether you’re a young graduate teaching English in Asia, a 50-something homemaker doing caring work in Britain, or a highly skilled professional, it’s important to know what the South African Revenue Services (SARS) expects if you’re working abroad. As a South African citizen and tax resident, you are potentially liable to pay tax even if you’re not living in the country. By understanding some basic tax rules, you can avoid inadvertently breaking some laws, and can also judge whether you might already owe SARS a payment. This is particularly relevant if you’re earning good money abroad, as new laws become effective from March next year, closing some lucrative loopholes.
Case Study One
Mark, 23, plans to teach English in Vietnam for two years and hopes to earn R20 000 per month. A recent graduate, he has not yet worked formally or paid tax. Although he might think that earning an income from an overseas source isn’t taxable back home, in this instance it is not necessarily the case. The South African taxation system works on a residence-based tax system, meaning we’re taxed on worldwide income. Under current law, Mark’s foreign income may not be subject to South Africa tax if he spends at least 183 days (roughly 26 weeks, or about six months) of a consecutive 12-month period outside of South Africa teaching English through his foreign employer. At least 60 of these days must be continuous. Under new laws, effective from 1 March 2020, South African residents who spend more than 183 days working outside the country will be subject to South African tax on foreign employment income over R1m. Mark won’t earn enough to fall into this tax bracket, but it is still important for him to register with SARS and file a tax return on money that he will earn next year even if he is not liable to pay tax. The good news for Mark is that doing your tax online has been made easier: Innovations in South African Revenue Services (SARS) such as eFiling and the MobiApp, makes it simpler to register and navigate, meaning Mark can now register with SARS eFiling.
Case Study Two
Mary, 55, has undertaken contract care work in the UK for seven months a year, for three years. Her accommodation and food are covered and R35 000 per month earnings have managed to sustain her family well (children have left the family nest, but Mary’s husband Peter is an invalid). Mary has not completed a SARS tax return over the past few years and is concerned that Brexit may affect her. Under current law, Mary’s foreign income may not be subject to South African tax if she spends at least 183 days (roughly 26 weeks, or about 6 months) of a consecutive 12-month period outside of SA. At least 60 of these days must be continuous or unbroken, however, so Mary should think twice before flying back often between caring stints. New laws will not affect Mary as she does not earn over R1 million, but it is still important for her to register with SARS and file a tax return. Mary should meet with a qualified tax consultant for some advice. She may already be paying some tax through the British agency that finds her placements. She could claim expenses against her income, for example the costs of air tickets between South Africa and Britain, and transport to reach her place of work. This may be relevant to UK tax law, but as she will not be paying tax in South Africa it would not be in SA. At this stage Brexit negotiations are unlikely to affect Mary, but her tax advisor will keep her updated.
Case Study Three
Sipho, 46, is a senior financial services manager in Hong Kong. Sipho earns R4 million a year plus a discretionary bonus that is around R1million a year. He has been working overseas for three years and plans to return home in two years’ time. Sipho is the type of taxpayer who will be affected by the new law. He will have to declare all of his Hong Kong income in South Africa and will be taxed on his foreign earnings exceeding R1m. As he is earning well above the rand equivalent of R1,5m, he will have to pay tax on up to 45% of his US earnings, in South Africa. He will be able to deduct the foreign tax he has paid so as not to be taxed on the same income twice, however he will no longer reap the benefits of the lower Hong Kong tax rate. Sipho may decide he does not want to return to South Africa after all and may be advised to financially emigrate, which means he will get to keep his South African citizenship and passport, but will be emigrating from a tax point of view. This is a formal SARS and South African Reserve Bank process. SARS will treat Sipho as if he is selling all his assets in South Africa – even if he isn’t – and he will need to pay tax on that amount as capital gains tax for all assets sold except for property.