With the South African economy seemingly under pressure, and a job market where employment prospects are limited, many South Africans are seeking alternative employment opportunities overseas.
Whether you are working overseas teaching English, offering caring services, or working as a freelancer for a really cool offshore company, you need to be aware of the tax implications of doing so before you take the big leap across the sea. Creative legal agency Legalese gives the lowdown on what to look out for:
South African tax residents are taxable on their worldwide income. This means that if you earn income from sources outside of South Africa, it is taxable in South Africa (unless of course a tax treaty between South Africa and the source country says otherwise). A common mistake people make is thinking that if they simply leave South Africa, they no longer need to pay tax in South Africa. This is not correct, as in terms of the Income Tax Act 58 of 1962 (the “Act”), a tax resident is a person who is “ordinarily resident” in South Africa, or who meets the physically present test. Ordinarily resident does not simply mean you need to stay in South Africa to fit that definition- if you regard South Africa as your home, to which you will likely return to after your “worldwide wanderings”, you have most of your social and family connections here (and many other considerations), you could still be a tax resident of South Africa even if you have been staying abroad for a while.
For those who are working overseas and are still South African tax residents, changes are coming as to how South African tax residents are taxed on foreign employment income. Currently, in terms of section 10(1)(o)(ii) of the Act, and until 28 February 2020, individuals who are employed abroad, who spend at least 183 days over a consecutive 12-month period, and at least 60 of these days are uninterrupted, may have the foreign employment income exempted from their South African income tax. From 1 March 2020, this full exemption will no longer apply, but only the first R1million will be exempted from income tax in South Africa- anything over and above this amount will be taxable in South Africa.
This pending change has seen some interesting reactions, with many people abroad deciding to formally emigrate from South Africa. Whilst one may decide to formally emigrate, it does not always necessarily mean that one ceases to be a tax resident in South Africa, as one could still very well fall within the definition of a “resident” in terms of the Act.
There also seems to be some confusion as to how section 10(1)(o)(ii) of the Act works- it unfortunately does not apply to situations where one works abroad as an independent contractor/ freelancer, or where one is self-employed. The income earned in such instances would not be subject to section 10(1)(o)(ii), and as a tax resident of South Africa the income earned as an independent contractor/ freelancer / self-employed individual would be fully taxable in South Africa, but which may be subject to any tax rebates/ credits afforded in terms of a tax treaty or the Act. If one is employed, the proof of such employment will need to be substantiated with SARS, by way of an employment contract.
If you are thinking of working abroad, get advice before you do so from a tax advisor. Ask the prospective employer if there is an employment contract. Assess whether there is a tax treaty in place between South Africa in that country, and work with your tax advisor in considering what your tax exposure will be when working abroad.
Even if taxpayers are not required to submit a tax return on an annual basis (due to not meeting the income requirements etc) it is recommended that taxpayers still do so, to maintain a tax compliance profile with no outstanding tax returns.
Legalese has just launched their tax legal offerings, providing a comprehensive guide on the tax implications of working abroad.