Expat tax What to know about double taxation, your tax status and SARS penalties

Amendments to South Africa’s tax law coming into effect from March 1, 2020, essentially mean that SA tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter, they will be required to pay tax on their foreign earnings.

SARS will take your total remuneration into account – not just your salary. This means SA tax residents working in certain foreign countries and receiving additional benefits such as security, accommodation and transport could be taxed on the total value of the package.

William Louw, a professional tax practitioner with Sable International, says it is a complex issue and ex-pats are advised to check their tax status as the new amendment specifically applies to an exemption allowed to South African tax residents.

Double taxation agreements

One of the factors to keep in mind is whether there is a double taxation agreement (DTA) between South Africa and the country where you are working, he notes.

“Where a taxpayer is registered as tax resident in both countries and there is a DTA in place, then the DTA will determine where and how a taxpayer must pay tax on income received,” says Louw.

SA has DTAs with about 40 countries. Countries that don’t have a DTA with SA include large portions of Asia, the Middle East and South America, according to Louw.

People who are working in Africa on contracts, for example, but who still have their homes, families and tax residency in South Africa, will also be affected. According to Louw, they can’t change their tax residency unless they move their family out of SA too.

“Most of Africa is covered by double taxation agreements. However, if a couple is based in South Africa, and one spouse is predominantly working outside the country in Africa and the other is working in South Africa, they will still most likely both be regarded as SA tax residents,” he says.

“Whether you work in a country with no DTA or in a country where there is a DTA, you still need to know what your correct tax status with SARS is,” Louw suggests.

“If your tax status is incorrect at SARS, you need to make the change before the end of February 2021. The (new) law will come into effect from March 1, 2020, but you still have several months to backdate your information and submit your return before the end of the tax year. Otherwise, SARS will come after you. SARS has marked everyone as South African tax resident unless you can prove otherwise.”

If you have dual passports, you have to prove that you’re a tax resident somewhere else.

“A common issue with people working outside the country is when they tell SARS their current address, they use their South African address. If you give SARS a South African address, they will think you’re a South African tax resident,” says Louw.

Strict penalties

He cautions that, if SARS picks up a problem and suspects tax evasion, they can levy a 200% penalty tax.

“Most of the revenue offices are talking to each other. There are over 140 banks around the world reporting transactions to SARS. SARS knows all of those cash flows. SARS will punish tax evaders with admin penalties,” he cautions.

There are two structures for penalties – fixed percentages and per-incident of problems. Fixed percentages range from 20% to 200%.

Then there are administrative penalties for outstanding and late returns. These penalties are charged per incident, per month to a maximum of three years. These could range from R250 to R16 000.

“People living overseas, who didn’t tell SARS they left the country and may still have an active tax number, are definitely at risk. Many people don’t make sure their tax number is no longer active,” he says.

Louw cautions that some people living overseas permanently may still need a South African tax number.

“If you own property or if you’re expecting an income stream in the future, such as an inheritance, if you still have business interests in SA generating income or if you have investment portfolios in SA and they are generating income, you are forced to have a tax number,” he explains.

Another issue that crops up is that, if a lump sum pays out, SARS sees that as income and wants a return.

“People don’t think they need to do a return because it has already been taxed,” adds Louw.

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