To effectively answer this question, we would need to first consider the taxation system in South Africa. Many countries including South Africa, have a mix of both source- and residence-based tax systems. If you are tax resident of South Africa, your worldwide income (both South African sourced income and Foreign income) is subject to tax in South Africa. However, if you are non-resident, only your South African sourced income will be subject to tax.

When are you considered to be a South African tax resident and does it relate to your citizenship? There are two tests set out in our law, the first being an “ordinary resident” of South Africa and second test is a physical presence test. An “ordinary resident” has been defined by our case law and refers to the place where a person will return from his / her wanderings. It is the second test that is relevant to expatriates working and / or living in South Africa, and most of the time expatriates are unaware of this position. In terms of this test, a person needs to be present in South Africa for a minimum of 91 days in each year for five consecutive years and must have an aggregate of 915 days over that five-year period, then in the sixth tax year, an expatriate will be deemed to be tax resident of South Africa and subject to tax on their worldwide income.

It relates purely to your physical days in South Africa and not to your citizenship, which most expatriates are not aware of and the consequences financially can be quite significant. Therefore, planning for an expatriate is of vital importance and it is a good idea to know in advance when you will become tax resident in South Africa and to make use of certain financial planning before you become tax resident.

If you are classed as non-resident, you will only be taxed and have to disclose your South African Source income in your returns submitted to our South African Revenue Service. This includes but is not limited to interest received from a South African bank account, income received from a property owned in South Africa and employment income relating to services rendered in South Africa. Yes, it does include the income you receive from owning a guest house in South Africa.

A question then arises, what happens if I am paying tax in my home country? Most countries provide relief for being taxed in two countries in that they have become parties to a Double Taxation Agreement. South Africa specifically has signed 21 tax treaties with African countries and 52 tax treaties with the rest of the world.

For example, if Z is a United Kingdom resident and is therefore subject to tax on his worldwide income, but owns a property in South Africa which he is renting out and receiving rental income every month. Z will find himself in the position where he is liable for tax in South Africa and the United Kingdom on the same rental income. What now? Does Z have to pay tax in both countries on the same income? The answer is no, South Africa and the United Kingdom have signed a double taxation agreement in that it provides relief against paying tax twice on the same income. In terms of Article 6 of the Double Taxation Agreement, South Africa will have the first right to tax and Z will have to claim a foreign tax credit for the taxes paid in South Africa in his United Kingdom tax return.

Another question regularly asked is whether an expatriate is liable to pay tax on money brought into South Africa? The basis for this question is known as the remittance basis of taxation. South Africa does not operate on a remittance basis of taxation and therefore there is no tax consequence.

Proper planning and tax preparation really can help an expatriate save money and avoid the position of being taxed at a higher rate than a person ought to be taxed as well as the consideration of paying deemed capital gains tax when ceasing tax residency of their home country.