Tax obligations for global citizens

De Wet De VilliersLatest, Tax Tuesday

The global pandemic has brought about a rapid change in the way we work. Many South Africans have taken this opportunity to keep their South African employment or businesses, whilst relocating to other parts of the world. If this is your setup, you should be mindful of how this affects your financial and tax position.

No longer a South African tax resident?

Firstly, if you’re no longer a South African tax resident, you would have triggered an exit charge. This would bring about a capital gains tax (CGT) event the day before you cease to be a South African tax resident.

This also means that you’re only taxed in South Africa on what you earn in South Africa.  If you are receiving income from a South African employer or business whilst you are based full-time in another country, the income earned will not be seen as a South African source income. This is because according to South African tax law, the source of employment income is where the employee physically performs those services. Provided the services are not performed (physically) in South Africa, it will not be taxed in South Africa.

South African bank account or foreign bank account?

This is the case, irrespective if your salary or income is paid into a South African bank account or a foreign bank account. However, if you are still a South African Reserve Bank resident, (which is different to being a South African tax resident), then you are not allowed to receive income from South Africa directly into your foreign bank account.

Those monies need to be paid into your South African bank account, thereafter you need to transfer those funds to your foreign bank account.

Single discretionary allowance and foreign investment allowance

Normally, this will be done either through your single discretionary allowance, or through your foreign investment allowance.  Your single discretionary allowance is R1 million per calendar year, and your foreign investment allowance is R10 million per calendar year. However, you must apply to SARS for the foreign investment allowance, whilst the single discretionary allowance doesn’t have such regulatory requirements.

Your tax obligations

Many South Africans will, in the above instance, either continue paying tax in South Africa, which is incorrect, or will not pay any tax anywhere in the world, which is also not correct. Most jurisdictions in the world levy tax on your worldwide income if you become a tax resident. As a result, the tax would usually be payable in the country in which you are a tax resident.

You can run …

If you want to be seen as a global citizen and want to be mobile, your tax affairs must be in order. Most of the tax jurisdictions in the world have automatic exchange of information agreements in place. So this means that going forward, it will be harder to fly under the radar.

Furthermore, the South African Revenue Service has upped the ante. They are currently advertising over 300 positions and they have appointed Judge Dennis Davis as a consultant. All of this will lead to better competency at source, more scrutiny of tax affairs and most likely, increased collection of taxes.

Tax Tuesday blog

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday. Don’t miss it!