With the Covid-19 pandemic largely within the rear-view mirror, tens of hundreds of South Africans are seizing profitable employment alternatives overseas.
On the similar time, many of those expatriates are unaware that their hard-earned earnings is liable to being taxed twice. On the one hand, by the South African Income Service (Sars) as a part of their worldwide earnings; and alternatively, by the international income authority as earnings sourced inside the borders of an expatriate’s host nation.
The excellent news is that Double Taxation Agreements (DTAs) are right here to assist. The place a DTA is out there between South Africa and an expatriate’s host nation, the results of double taxation by each Sars and the international income authority could also be stopped in its tracks.
Sadly, misinformation relating to DTAs continues to be being shared all through expatriate social communities overseas. Because of this, the next frequent misconceptions about how DTAs work have to be dispelled.
1. Revenue earned overseas and tax residency
Many expatriates consider that Sars can’t tax their international earnings earned whereas dwelling and dealing overseas. These expatriates declare that since their earnings is earned from a supply outdoors South Africa, Sars has no proper to tax their earnings earned overseas.
This perception is wrong. South African expatriates should perceive that South Africa’s tax system is residence-based.
Merely put, South African tax residents can be taxed by Sars on their worldwide earnings.
In stark distinction, South African tax non-residents will solely be taxed on earnings derived from a supply inside the borders of South Africa.
By accurately making use of the obtainable DTA, expatriates might undertake the formal course of with Sars to replace their standing in South Africa as being tax non-residents. The advantage of doing so, is that their international earnings will as an alternative be rendered as non-taxable in South Africa.
2. A DTA enforces double taxation
Some expatriates are additionally of the opinion that Sars will use a DTA with their international host nation to make sure that they’re double taxed, each in South Africa and overseas.
Nevertheless, the exact opposite is true as the aim of a typical DTA is to stop an expatriate’s earnings from being taxed twice. That is obvious from the title of a DTA, which incorporates the reference ‘for the avoidance of double taxation’.
3. DTAs Apply Robotically
One other frequent false impression amongst expatriates is {that a} DTA will apply routinely to guard their international earnings from being taxed by Sars. It is a grave mistake, for a number of causes.
Firstly, an expatriate can solely declare reduction from double taxation if a DTA is out there between South Africa and their chosen international host nation. For instance, South Africa presently has DTAs in place with 82 nations all over the world, together with Australia, Belgium, Canada, Nigeria, Saudi Arabia and the UK.
Secondly, solely expatriates who qualify can declare reduction by way of the related DTA.
To find out if an expatriate qualifies, Sars will examine whether or not she or he has the intention to stay overseas completely or not.
Additional, the expatriate must fulfil the necessities of the so-called ‘tie-breaker take a look at’ provisions of the related DTA. Satisfying these provisions will allow an expatriate to allocate the taxing rights of their international earnings solely to their host nation, somewhat than South Africa.
Thirdly, expatriates are required to bear a proper course of by making use of to Sars to alter their standing in South Africa from tax resident to tax non-resident. This variation doesn’t happen routinely. Actually, solely upon profitable completion of its verification course of, will Sars challenge an expatriate with a Discover of Non-Resident Tax Standing letter, to substantiate their tax non-residency in South Africa.
4. How will Sars know?
Most South African expatriates are of the assumption that it’s unimaginable for Sars to search out out about their earnings earned whereas dwelling and dealing in international host nations. Some expatriates have even stopped submitting tax returns in South Africa on account of them being overseas.
This inaccurate view stems from a mistaken perception that Sars is not going to uncover their international earnings. Actuality dictates in any other case, as Sars actively collects and shares info with international banks and income authorities via the Widespread Reporting Requirements (CRS) initiative.
To place it as it’s, many expatriates have been caught out and audited by Sars after info was obtained via the CRS. The authorized penalties being inclusive of punitive penalties, curiosity and even prison prosecution. In view of this, expatriates ought to play open playing cards with Sars by persevering with to file their tax returns to totally declare their international sourced earnings. This earnings might then be shielded from double taxation via the applying of the obtainable DTA.
5. Overseas Tax Residency Certificates: Assured Safety
Some tax advisors advise South Africans that double taxation can be stored at bay, by merely acquiring a tax residency certificates (TRC) from their international host nation’s income authority.
Whereas a TRC is a vital doc required by Sars as a part of the formal DTA utility course of, this is just one piece of the puzzle. Expatriates will even want to supply Sars with a number of key paperwork and a written motivation, ideally within the type of a authorized opinion, to supply ample proof that they do qualify for a brief tax non-resident standing. Collectively, all of those paperwork will paint an entire image of an expatriate’s factual background in assist of their DTA utility.
With the assistance of skilled tax attorneys, South African expatriates have navigated the technical pitfalls to efficiently declare DTA tax reduction and shield their earnings.
Delano Abdoll is authorized supervisor of cross-border taxation and Richan Schwellnus is tax affiliate at Tax Consulting South Africa.
