When moving abroad the primary focus is generally settling in and assimilating to a new society - tax affairs are hardly top-of-mind. Since tax systems differ so greatly it’s also easy to forget how things work back home, especially if you don’t stay abreast of legislative amendments. However, neglecting your tax obligations can come at a grave cost and see you falling foul of the law without even bearing knowledge of your transgressions.
Rand Rescue takes a look at some of the greatest SARS challenges and blunders faced by Saffas abroad.
Fiscal Year Periods
A huge issue for South Africans abroad is the difference in fiscal (tax) years and filing seasons. This can create problems where SARS requires updated tax documents/directives from foreign entities.
Different fiscal years for personal income tax around the globe include:
- South Africa: 1 March y1 - 28/29 February y2
- New Zealand, India & Canada: 1 April y1 - 31 March y2
- USA, Thailand, Brazil, Singapore & EU: 1 January y1 - 31 December y1
- UK: 6 April y1 - 5 April y2
- Australia & Egypt: 1 July y1 - 30 June y2
- Argentina: 1 August y1 - 31 July y2
- Nepal: 16 July y1 - 15 July y2
This could not merely pose a problem when dealing with SARS, but also have implications for dealing with tax authorities abroad since regulators and financial services providers may require proof of tax compliance for periods still under assessment or not yet filed.
The greatest headache for South Africans who have left the country recently or those who have not formalised their tax status with SARS is proving their non-resident tax status for an uninterrupted period of three years before it’s invoked retroactively. This has a particular bearing on accessing retirement funds.
Although the lockdown of retirement annuities applied before 2021, this could be remedied by applying for financial emigration - an undertaking that generally took a few months and not three years.
Retirement Fund Definitions
Additionally, the definition of retirement funds was also amended recently with pension and provident preservation funds now receiving the same treatment as retirement annuities.
Provident funds were also streamlined to align with pension fund treatment. Any contributions made to such funds from 1 March 2021 (for those under 55 years of age) are now considered non-vested benefits and individuals are only allowed to take one-third of their withdrawals as lump sums, with the remainder to be used for purchasing taxable annuities. (Save where the total value of the vested benefit is below R245 700).
Exit Tax Blunders
When an individual leaves South Africa this triggers a deemed disposal of worldwide assets for capital gains tax purposes. SARS treats this as if the individual has ‘sold’ their worldwide assets at market value on the day of ceasing residency - which requires payment of exit tax on such disposal. What many don’t realise is that such exit tax is due on the day before ceasing to be a resident.
Those who don’t confirm their non-resident tax status and pay their exit tax could be subject to jeopardy assessments which could see SARS impose the exit tax on their current asset base instead of their asset value at the time of leaving South Africa which could see a far larger chunk of their assets lost to taxes.
The new process for obtaining Tax Compliance Status (TCS) PINs can be quite complicated for those who haven’t filed taxes in a while or aren’t acquainted with eFiling. Even South African emigrants who simply want to make use of their Foreign Investment Allowances need to complete the onerous Approval for International Transfer process.
Furthermore, the new system does not yet allow for uploading or challenging all findings online, which means individuals may need to visit SARS in person or appoint a proxy to tend to their tax affairs on their behalf.
Non-residents can not take their immovable property with them on departure and often delay the sale of such assets intending to generate a secondary income in South Africa.
Those who treat their South African properties as if they were still local taxpayers but subsequently want to prove their non-resident status for tax purposes retroactively can face issues with property sales. The sale of immovable property by non-resident taxpayers requires a withholding tax of 7,5% - 15% for sales exceeding R2 million. Even if the total amounts payable exceed this amount by just 1c, the withholding tax is applicable on the total amount, not merely the excess.
Foreign Income Exemption
South Africans living and working abroad who have not yet formalised their non-resident for tax purposes status with SARS are facing significant headaches with changes to foreign income. In previous years South Africans bargained on Section 10(1)(o)(ii) of the Income Tax Act, 1962 to enjoy a full exemption on their foreign-sourced income.
As of 1 March 2020, however, SARS has placed a cap on such exemption, limiting it to R1,25 million per year while also expanding the definitions of income to include leave pay, overtime, bonuses, allowances, broad-based share income and vesting, emoluments, commission, gratuities, memberships and more.
South Africans used to invoke Section 10(1)(o)(ii) of the Income Tax Act 1962 to enjoy an exemption on their foreign-sourced income had they been outside the country for 183 days in aggregate and 60 consecutive days in a continuous 12-month period, but such income is still only exempt up to the R1,25 million cap.
But even in such instances, the rules aren’t always clear. For instance, even if the rule above is satisfied SARS will exclude weekends, leave days, and periods in SA when calculating the income exemption.
Trust the Experts
Rand Rescue has assisted thousands of emigrants in managing their SARS affairs across borders. With an intricate grasp of local and foreign tax affairs and as a registered financial services provider with branches across the globe we are your ideal partner in dealing with the intricacies of cross-border finance.
Contact us for an obligation-free consultation to discuss your needs.