Tax Season: Filing your taxes from abroad
For those of us living abroad, it’s conceivable that events on our home soil may be pushed to the back of our minds. This is even more relevant when it comes to administrative duties like filing taxes.
If you’ve already completed the financial immigration process, then our article below would make little difference to your life. If, however, South Africa is still the hub of your financial activity or you haven’t deregistered as a South African taxpayer, this article is for you!
South African tax season
The South African tax year (or fiscal year) for the 2018-19 period ran from 1 March 2018 to 28 February 2019. Unlike some other years where tax filing only started in July, SARS has shown that their new automated systems are doing the job and online tax filing already opened on 4 June 2019.
For saffas living abroad, this means that you can now file your SA taxes via SARS e-filing. If you have not used e-filing before, you can register for it on the SARS e-filing site at https://www.sarsefiling.co.za/.
If you have used it before, keep in mind that SARS have made some changes to the tax filing system and you will be asked additional questions including whether you have immigrated and you will be required to reconfirm or update details such as your residential address, contact details, bank account details and passport number.
Authorities have warned that the new questions are put in place to automatically detect fraud. Should you say, for instance, that you hold no income outside South Africa, but you hold bank accounts offshore or earn an income abroad, your answers will be vetted against information provided by foreign countries and financial institutions to detect fraud, money laundering, tax evasion and other criminal activity.
Why would I care about South African taxes?
While many South Africans who have moved abroad pay no mind to their financial affairs back home, it’s important to note that any non-compliance may land you in hot water and could hamper your financial affairs in your new home.
Firstly, as we have noted in previous articles, the Organisation for Economic Co-Operation and Development (OECD) instituted the Common Reporting Standard (CRS) and Automatic Exchange of Information (AEOI). Though various countries involved had been given time to come to the party, so to speak, 2018 was the first tax year that ALL countries who had signed the agreement recorded and shared information across international lines.
Countries who started aggregating and reporting information in 2017:
Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom
Countries who started aggregating and reporting information in 2018:
Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Pakistan, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Turkey, Switzerland, United Arab Emirates, Uruguay, Vanuatu
It’s important to note that, although South Africa started aggregating and reporting information from 2017, companies, individuals and institutions had been given time to amend their systems for compliance and that full reporting on financial affairs is only just becoming a reality.
Furthermore, saffas abroad should remember that amendments to South African expatriate tax law is coming — getting your tax affairs in order is simply a smart thing to do.
Why would I use e-filing?
In the past, tax filing had been a bit of a nightmare (to say the least), but we’re happy to report that filing your taxes is becoming quite a breeze. Everything is becoming faster, more efficient and easier thanks to technology and application development. This is true for SARS e-filing as well.
The e-filing interface may not be much to look at, but it offers users easier ways do things every year.
As an expat, e-filing is not only useful for bridging gaps in time and space, but it also assures your compliance and can be used to obtain your tax clearance certificate.
A tax clearance certificate is useful for a number of reasons — it may be a requirement for a new job or business venture, may be necessary for opening certain accounts or buying assets and is a prerequisite if you want to claim an exemption under a double taxation agreement (DTA), emigrate financially or if you want to use your annual foreign investment allowance (FIA) for transfers out of South Africa which exceed the R1 million single discretionary allowance limit (Up to R10 million).
Expatriate tax amendments
For South Africans living abroad, the looming amendments to the SA expatriate tax law means that there really are only two practical options when it comes to remaining compliant and safeguarding your financial assets.
Before we get to those options, let’s quickly recap the expatriate tax changes which we’ll be facing in the coming future.
The legislative amendment will be applied from 1 March 2020, which means that this fiscal year is the last in which you can forego these new tax rates. Section 10(1)(o)(ii) of the South African Income Tax Act currently provides tax relief on foreign earned income for Saffas living or working offshore. Though this section still holds, it will only be applicable on income up to R1 million. SARS aims to levy a 45% tax rate on any and all income earned above this cap. What’s problematic about this is that ‘any and all’ could include assets, fees, memberships, fringe benefits and other bonuses which might have a monetary value.
This means that your income may be over the threshold by SARB and SARS standards even though your own calculations may show otherwise.
Most people bargain on passing the residency test — claiming that they are not ordinarily a resident of South Africa — but as we’ve noted in a previous article, there have been cases where South Africans were deemed tax residents of SA even though they’d not been in the country for the year of assessment.
Top options for SA expats
The two best options for SA expats are to claim exemption under a DTA or to change their tax residency status.
The DTA is available to South Africans living or working abroad and exempts them from double taxation in two jurisdictions simultaneously. Most South Africans choose this option if they live or work in a country and:
- want to forego taxes in South Africa since they reside in the foreign territory most of the time, or
- currently live or work in a country which offers a lower tax rate than South Africa
The latter is problematic, since it’s exactly these type of expats that SARS is looking to clamp down on for tax evasion. The new expatriate tax law amendments will also compare the tax rates for foreign territories with that of South Africa. This means that if you are still a tax resident of South Africa and you are deemed to be ordinarily a resident of SA, then you may be liable for the shortfall in tax rates.
Nevertheless, if you do want to claim exemption under a DTA, the following countries have double taxation agreements with South Africa:
– Botswana (latest protocol in progress)
– Czech Republic
– Democratic Republic of Congo
– Gabon (yet to be ratified in SA)
– Germany (renegotiated agreement yet to be ratified in SA)
– Hong Kong
– Republic of Korea
– Kuwait (updated protocol in progress)
– Luxembourg (updated protocol in progress)
– Malawi (renegotiation in progress)
– Mozambique (updated protocol in progress)
– Netherlands (updated protocol in progress)
– New Zealand
– Russian Federation
– Saudi Arabia
– Senegal (negotiation in progress)
– Sierra Leone
– Slovak Republic
– Sudan, Republic of (yet to be ratified in SA)
– Swaziland (updated protocol in progress)
– Switzerland (updated protocol in progress)
– United Arab Emirates
– United Kingdom
– United States of America
– Zambia (renegotiation in progress)
If you are tired of the confusion and want to wrap up your tax affairs in SA, then the best option is to change your tax residency.
Changing your tax residency is also called financial emigration. This process notifies SARS and SARB that you are no longer a resident of South Africa for tax purposes and, once completed, you will no longer be liable for tax in South Africa.
During the financial emigration process, an account will be opened for you with an authorised agent (one of SA’s top banks) and all your money in SA will henceforth be channeled through this account. This does not mean that you won’t have access to other types of banking or investment accounts in SA, but you will need to reapply for such accounts as a foreigner tax resident.
Note that this does not change your citizenship status or affect your passport — financial emigration only affects your tax status.
The process can be a bit tricky and long-winding, but it’s highly beneficial to you in that you can:
- encash and expatriate retirement annuities before retirement — something which is not possible as an SA tax resident
- reinvest all your financial assets offshore or use for whichever purpose you like
- benefit from pension incentive schemes in foreign territories if you reinvest in a local pension, and/or
- since you will pay withdrawal tax upon financial emigration, you will not be liable for further SA tax on these funds should you eventually return to South Africa.
Trust the experts
Thousands of South African expats have entrusted Rand Rescue with this arduous task of completing their financial emigration on their behalf.
We’ve the necessary accreditation and resources to complete the application for our clients and moreover we can do so remotely.
If you want to emigrate financially or have questions about your tax status or cross-border finances, simply leave your details below and we’ll contact you for a free consultation.