South Africans living and working abroad should be very clear about their current tax status given the looming change to the taxation of foreign remuneration.

The amendments to the Income Tax Act in terms of the taxation of foreign income comes into effect in March next year. Any income from employment above the set threshold of R1 million will become subject to tax for South African tax residents.

Hugo van Zyl, member of the personal tax work group of the South African Institute of Tax Professionals (SAIT), says people working abroad should ensure their past tax compliance is in order.

Although the foreign income had been tax exempt in the past, it should have been declared to the South African Revenue Service (SARS). Once a tax non-resident, this obligation falls away and all the taxpayer needs to do is to annually ensure he remains tax resident in a treaty country.

Many people may be non-resident for tax purposes because of relief contained in the various Double Taxation Agreements (DTAs) South Africa has with other countries.

SARS says although SA taxes residents on their worldwide income (South Africa has a residence-based tax system), taxpayers who are non-residents will be taxed only on income accrued to them in South Africa.

This includes income from rental or interest on capital invested in the country.

Someone is ordinarily resident in SA if he or she plans to return after some time – they consider this country their “real home”.

Those who meet the physical presence test (certain time periods the person spent in SA) will also be considered tax residents.

It is only when the individual is neither ordinarily resident nor meets the 330 consecutive days physical absence from SA test that he will be regarded as a non-resident for tax purposes and his foreign income will not be subject to South African tax.

Van Zyl says tax emigration is the easiest, most cost-effective way and offers the most tax certainty “you can hope for”.

He says there has been a lot of “noise” about financial emigration to mitigate the tax on foreign income. However, he notes that financial emigration is a choice, whilst tax emigration is a fact.

Financial emigration is indeed advisable for true emigrants, not intending to return to SA. People forced to return to SA or people most likely to return to SA at the end of their work permit stay, should think twice before they allow a tax professional to convince the South African Reserve Bank that they qualify as an exchange control emigrant.

“This said, there are indeed steps that you can take to ensure tax migration happens. If you are working in a treaty country (a country that has a DTA with SA), ensure your SA family and holiday homes are rented out permanently. The tiebreaker test will then always favour the new country and deny SARS the right to know or tax your expat income.”

The tax law in SA is quite clear: if you are tax resident in a treaty country and the treaty rules favour the host country, you are deemed to be a tax non-resident.

The taxpayer will pay an exit tax (capital gains), but his foreign income in excess of R1m will no longer be taxed.

Van Zyl says if for example the United Arab Emirates (UAE) issues an individual with a tax domicile certificate and he does not have access to a house in SA (his own home is rented out or sold) then he is most probably only tax resident in the UAE.

“You therefore have tax emigrated from SA, not because you elected to do so, but because the treaty tiebreaker rules read with the provision in the Income Tax Act deem you to be exclusively tax resident in the UAE, despite being ordinarily resident in SA.”