South African expats tax 101: You are no longer residing in South Africa, but did you let SARS know?
As a significant number of our students, network and staff are South Africans, we thought it appropriate to spread the word on the latest SARS initiative where they aim to tax you on your Euros earned. As if there wasn't enough red tape and paperwork to get to this point, SARS has added another procedure that applies to your tax residency status and they are on high alert to enforce it on unsuspecting South Africans abroad.
Unless you have been keeping yourself well informed on the matter and you have taken the required steps to ensure that your tax status has been updated in accordance with the new procedure, there is a good chance that your uncertainty will be used as an opportunity to tax you on money earned outside of South Africa.
Although the subject has little involvement with learning Dutch, many of our students may be unaware of the situation and will find this information very useful. Nothing exclaims "eish", quite like a summons being issued upon your arrival at the airport, which is the current practice. Learn Dutch Online and it´s staff and trainers will always try to point you in the right direction should you require information outside of lesson material. We are always here to help as most of us have been through the process of immigrating ourselves.
One of our own trusted advisers is Dylan from Tax Consulting South Africa, who was kind enough to send us detailed information to help make sense of it all. In our discussion, he mentioned that they are currently helping South Africans from Australia to Canada and beyond to get their taxation status compliant with their residency status. He sent us the information below and notified us that he and his team will be available for an in person Q&A for those who want more info or don't "speak tax". Links and contact details at the end.
Tax Consulting SA European Roadshow
Moving from South Africa is not as simple as packing up your bags, jumping on a plane and setting up in the Netherlands. There is still the issue of taxation and for the 5th consecutive year, South Africa's budget review included changes aimed at increasing the tax burden on Internationally mobile South Africans. Where you have not proactively planned upfront and/or did not formally declare to SARS you have left permanently, you risk exposing your Dutch income to South African tax when the new filing season opens in July 2022.
We are excited to inform you that Tax Consulting SA, the largest independent tax practice in South Africa, will be doing a roadshow in the Netherlands and in Belgium at the end of March 2022. This will be the ideal time to have all your questions answered and get expert advice from the team that are market leaders in South African expatriate taxation and who also authored the LexisNexis textbook on the subject matter.
You can complete a short survey indicating your interest to attend the roadshow as well as what topics you would like discussed or questions you would like answered. This will help their team prepare appropriately for the roadshow and tailor their presentation to your needs. They will help you to protect your earnings and keep clear of potential legal issues.
Link to the survey:
Here is what Tax Consulting SA sent us for perspective:
Most of the concerns originate from the uncertainties surrounding the ceasing of their tax residency, with many not even sure what the term really means. With the South African Revenue Service (SARS) on high alert for non-compliant expats, it is important to understand your tax residency status.
Podcast version in the link below
What is tax residency?
Simply put, tax residency refers to residency based on the country that holds the right to tax you on your earnings. It provides clarity to revenue authorities (i.e. SARS & Belastingdienst) about your residency for tax purposes. In other words, your tax residency has nothing to do with your citizenship in a tax residency-based system. For example, you might be a South African citizen but be a tax resident in the Netherlands.
The example above, however, is not an automatic process. Your tax residency status with SARS will never change of its own accord. To better understand the implications of working in another country, try to view it from SARS' point of view. How will SARS know if you move to another country for work and meet the requirements for South African non-residency? While information could be obtained through a multilateral or bilateral information exchange agreement between South Africa and another country, it is not SARS' responsibility to check up on your whereabouts or to find out what you are up to.
SARS have no idea whether you are visiting the country, working from there or emigrating, unless you inform them of your intentions. Their function is to actively pursue the collection of taxes from South African taxpayers. If you do not inform SARS that you will no longer be resident in South- Africa for tax purposes, they will continue their pursuit to collect tax from you as though you are a South African taxpayer living and working in the country.
The burden of proof is solely on the taxpayer in South Africa to evidence and declare their tax status, thus SARS will not automatically update anything even if you meet all criteria to break tax residency. You will need to go through a formal declaration process.
Chances are that if you are still reading this, that a few concerns and even profanities may have been slipped out. If they have not been in Dutch, there is a good chance that you may require lessons. Contact us to sign up or find out more about our programs.
How to cease your tax residency?
There are only two ways to formally cease your tax residency: under a Double Taxation Agreement (DTA) or when completing a financial emigration. Both these options can offer you relief from being taxed on your Netherlands and offshore income. When weighing up the pros and cons of each option, it is important to decide whether you intend returning to South Africa in the near future, because your intentions will help determine which one process to follow.
Financial Emigration: Financial Emigration: Should I stay, or should I go? This is a once-off ceasing of your tax residency. It means you are not planning to return and reside in South Africa. A financial emigration, the process of permanently changing your status from tax resident to non-tax resident, usually accompanies the act of emigration, the process of physically relocating to a new country. It is dealt with according to SA Income tax law and not according to any tax treaties. You would exercise your right to break tax residency dependent on certain criteria once-off, and this would note you legally as an SA tax non-resident wherever you might live abroad.
Double Taxation Agreement: DTA Misconceptions That Expats Must Know About | Tax Consulting South Africa
Temporarily ceasing your tax residency under a DTA means you are likely to return to South Africa at some point in future. It is important to note that a DTA does not simply mean you will pay tax in one country or another. It is international legislation that is agreed to between the two countries. Where taxpayers working and / or living in a foreign tax jurisdiction (For example, the Netherlands) meet all the criteria as set out in the specific DTA between the relevant countries (RSA / NED), they can claim relief under that DTA. Please note this does not automatically apply and needs to be applied for annually with SARS.
You can read the DTA here: RSA_NED_AGREEMENT (sars.gov.za)
Objective factors : Proof in the Pudding For South Africans Abroad - SARS Show Their Teeth | Tax Consulting South Africa
The criteria will often include determining one's residency status in the foreign country, obtaining a tax residency certificate from the foreign tax authority (For example, from the Belastingdienst), compiling evidence to confirm that the legal requirements for DTA relief are met, and supplying this evidence to SARS. In other words, you must be able to deliver evidential proof that you are classified as exclusively tax resident in the host country (which, as mentioned above, has nothing to do with your citizenship or immigration status).
Whichever of the two options are most suitable to your unique needs, it will still require future planning to mitigate your exposure to additional taxation. For example, neither process will exempt you from paying tax on South African sourced income (including rental income).
How will you know if your tax residency status has been changed?
It is important to never assume that either of these processes would take place automatically. You must first conclude a formal application. It is not a change of status that can be facilitated on call centre or branch level. Sending an e-mail to let SARS know as an FYI, will not alter your status.
You will need to prove to SARS that you are not resident in South Africa for tax purposes, which SARS can still turn down if the objective evidence does not merit the application. It is important to carefully evaluate the objective factors when applying for relief under a DTA or doing a financial emigration, as it could hamper your application. These include, among others -
a) whether your spouse remains in South Africa;
b) whether you intend to reside again one day in SA; or
c) whether you still own property and under what capacity in the republic.
By ceasing your tax residency, it indirectly shrinks the tax base in South Africa, which is why SARS will make sure of your objective circumstances when conducting their audit. They could ask if you have bought property in the other country, whether your visa allows you to stay there indefinitely, or whether you have a clear path towards permanent residency in the foreign country.