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Tax in South Africa for Expats

Tax in South Africa can be a complex business and this article aims to provide an easy to understand overview, including the changes introduced for 2021 and 2022.

Last updated 26 March 2021 at 14:02

Tax in South Africa can be a complex business. Under current South African tax rules, you will be subject to South African tax if you live and/or work in South Africa or if you live in another country but are considered to be a tax resident in South Africa.

The amount you will pay depends on a variety of factors, which will be discussed within this article to give you a clearer understanding of your South African tax responsibilities.

South Africa’s 2021 National Budget speech was also delivered on February 24th 2021 by its Finance Minister, Tito Mboweni, which brought several new tax measures, some of which are beneficial depending on your circumstance as an individual.

Who has to pay tax in South Africa?

To clarify, you must pay taxes in South Africa if you:

  • Consider South Africa as the place in which you will reside on a permanent basis (whether currently abroad or otherwise)
  • Lived within South Africa for more than 91 days in the relevant tax year, as well as more than 91 days in each of the last five tax years (as well as more than 915 days in total within that period)
  • Earn income from a South African source (including rental income)
  • Own a home in South Africa, non-residents included (in the event that they are liable to pay capital gains tax on the property)
  • Earn over R1.25 million in foreign employment income as a South African tax resident (or do not meet the requirements for exemption)

Taxes for expats in South Africa: Double tax relief and tax treaties

Expats that are relocating to or from South Africa should know that it also has tax treaties with several countries, which can help avoid double taxation in your home country.

Some of the 81 countries that South Africa has double tax treaties with include the United Kingdom, the United States, Japan, Sweden, Thailand, Australia, Saudi Arabia and the UAE.

In the absence of treaty provisions, unilateral relief (in certain circumstances) is available on foreign-source income in the form of a R1,25 million exemption for foreign employment income or a credit for foreign taxes paid (limited to the lesser of the actual foreign tax liability and the South African tax payable on the foreign income).

Who is classed as tax and non-tax resident of South Africa?

You are a South African tax resident if you meet one of two tests

  • The ordinarily resident test
  • The physical presence test

To classify as a non-resident for tax purposes in South Africa, you must ensure that you do not meet the above requirements or otherwise meet the requirements to be considered exclusively tax resident of another country under a tax treaty.

If you decide on changing your tax residency status, it will mean submitting an application and making the appropriate disclosures to SARS. Each case is then closely evaluated based on its own merits.

How is income taxed in South Africa?

South Africa uses a residence-based taxation system, meaning that residents are taxed on worldwide income and non-residents are taxed on South African-sourced income.

The 2021 National Budget was announced on 24th February 2021, which stated that personal income tax brackets have been granted to be increased by 5%, which is above inflation.

This comes as an attempt to focus on targeted economic recovery after the last year’s lasting effects of the COVID-19 pandemic.

This estimated to result in R2.2 billion in tax relief (most of which will mainly be enjoyed by lower/ mid-income earners).

Furthermore, income tax on companies is anticipated to decrease to 27% for the years of assessment commencing on or after 1st April 2022, which will be managed in a revenue-neutral manner.

Year ending 28th February 2022

Taxable Income

Rate of tax (R)

R0 – R216 200

18% of taxable income

R216 201 – R337 800

R38 916 + 26% of taxable income above R216 200

R337 801 – R467 500

R70 532 + 31% of taxable income above R337 800

R467 501 – R613 600

R110 739 + 36% of taxable income above R467 500

R613 601 – R782 200

R229 089 + 39% of taxable income above R613 600

R782 201 – R1 656 600

R229 089 + 41% of taxable income above R782 200

R1 656 601 and above

R587 593 + 45% of taxable income above R1 656 600

 

What other tax changes have been announced with the 2021 National Budget speech?

VCC (Venture Capital Company) tax incentive abolished

The South African government have abolished the venture capital company tax incentive after 30 June 2021. The scheme was created to encourage investments into small businesses and the somewhat ‘riskier’ ventures, which was planned to help create multiple jobs and economic growth.

The scheme was introduced in 2008 and was expected to be extended past its set expiry date of 30th June 2021, but due to not creating nearly as many jobs as expected and said to be causing significant tax deductions for the wealthy taxpayer, the scheme has been stopped.

Increase in Excise Duty Tax

A larger than anticipated 8% increase has been applied in excise duties on alcohol and tobacco, in an attempt to encourage consumers to choose to purchase less.

Do I pay Capital Gains Tax in South Africa?

Capital Gains Tax applies to individuals, trusts and companies and must be paid to the South African Revenue Service (SARS).

If you are a South African tax-resident, you are liable for Capital Gains Tax on the disposal of assets located in and outside South Africa.

Capital Gains Tax is not a flat rate in South Africa. This means that your taxable capital gain will be added to other taxable income for the tax year, which you will then be taxed on accordingly, depending on the tax bracket that this amount puts you in (this can range between 7.2% to 18%).

Do I pay any Inheritance Tax in South Africa?

There is no tax on money received from an inheritance in South Africa (this includes Capital Gains Tax). However, there is an estate duty levied on deceased estates.

Request a free introduction to a South African Tax Consultant

International tax matters can be extremely complex, and you must always make sure to seek help from a professional if you are in doubt about your circumstances.  The structures and investments that may be tax efficient in other countries may have quite different tax implications from a South African perspective.

Our free introduction service will connect you with a hand-picked South African tax expert that has the required qualifications and experience to assist South African nationals living abroad and foreign nationals living in South Africa with their South African tax affairs.

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