Where you have international economic interests, your income may potentially subject to tax both in South Africa as well as in the foreign country, resulting in double taxation. A common misconception we see among South African expats is that they believe they are “automatically tax-exempt” just because there is double taxation treaty in place between the two countries. This is completely wrong and there are various factors that need to be considered, and objectively proven, and you are still required by law to file a tax return and “claim” exemption under treaty relief.
A Double Taxation Agreement (“DTA”) ensures that a taxpayer is not unfairly taxed in both South Africa and the corresponding country dealt with in any specific DTA. It thus provides a defence to double taxation and sets out various requirements that a taxpayer must meet to understand where that taxpayer falls as a tax resident.
Dependent on where a taxpayer falls as a tax resident, taking into account the DTA, will determine where the taxpayer must pay certain types of taxes on income received.
To correctly apply treaty relief on your foreign earned income, you will need to consider which country will actually have the right to tax your income. This is achieved through a measured approach, known as the tie-breaker test, and takes into consideration various factors such as if you have a tax residency certificate, where you have a permanent home, where your centre of vital interests are, i.e. where your family and economic ties are, as well as where your habitual abode is, to name a few.
A DTA becomes relevant to a taxpayer’s circumstances if that taxpayer is earning an income for instance in South Africa as well as abroad, or if that taxpayer is a tax resident of South Africa (but has no income from a South African source) and is earning income from a foreign source.
This type of situation often gives rise to a grey area as to where a person can or should be taxed, especially taking into account that a South African tax resident is subject to tax in South Africa on its worldwide income.
Thus, many South Africans living and working abroad may need to consider what their tax treatment legally should be when taking into account the DTA between South Africa and the country they are now residing in. There is the possibility that a taxpayer may need to pay tax on their foreign income in South Africa and utilising a DTA may be an option to ensure this does not happen.
Please Note: Not all countries have a DTA with South Africa. Click here for the full list of countries.
Tax Consulting South Africa has been in existence for 17 years and are widely acknowledged as the market leaders in Expatriate Tax. The group was entrusted by Barry Pretorius and South African expats worldwide to represent the Expatriate Petition Group (“EPG”) in parliament to fight the law change, which resulted in the R1.25mil exemption, and also authored the LexisNexis’ first of its kind Expatriate Tax textbook released late year.
Our multidisciplinary team of more than 120 professionals including Tax Attorneys, Tax Practitioners, Chartered Accountants (SA) and Emigration specialists, will take over the entire DTA application process on your behalf. This involves assessing one’s circumstances as well as the DTA that would apply to them and thereafter draft a legal tax opinion which provides precise clarity on where one falls in terms of taxing liability. The opinion can then be used in conjunction with an argument to SARS should they disagree with your tax position as a non-tax resident in terms of a DTA.
Delano Abdoll
Legal Manager: Cross-Border Taxation
Admitted Attorney, LLM
John-Paul Fraser
Team Lead: Cross-Border Taxation
Admitted Attorney
Richan Schwellnus
Cross-Border Taxation Attorney
Admitted Attorney
General Tax Practitioner (SA)™ (SAIT)
Chavaughn Phillips
Expatriate Tax Specialist
Kingsley Bennett
Tax Legal Support Specialist
