The Minister of Finance has said in his Budget Speech they want to start taxing South Africans who are working abroad in countries that does not have a tax treaty with South Africa, for example Dubai. If this will become law, only time will tell. However, in the meantime South Africans working abroad need to check if SA has a tax treaty with the country where they are working.

If no treaty exists, they will still not be taxed if they are non-resident in SA for tax purposes.

Tax residency is vitally important because it determines whether you are liable to taxation in South Africa – now primarily a residence-based tax regime as opposed to the old source-based regime we had prior to 1 March 2001. The general rule is that if you are a resident for tax purposes you are subject to taxation on all income and capital gains you earned worldwide, no matter in which country they arose. The problem is that most people who left South Africa without formally emigrating probably did so through their bankers by taking a temporary relocation allowance which allowed them to ship out household furniture and some funds – but with the intention to return “home” to SA at some stage in the future.

There are two tests for SA tax residency – and you must fail the first before you can apply the second. To compound matters, the first test is not defined as such but encompasses the term “ordinarily resident” which must be interpreted under our common law. To simplify a complex concept: you are “ordinarily resident” in the place you would regard as your permanent “home”, the place you would tend to return to after your worldwide wanderings. So if you left SA with the intention to return after a period of time, you would still be “ordinarily resident” in South Africa and your worldwide income will be subject to South African tax, regardless of how long you have lived “temporarily abroad”.

Fortunately, your foreign earnings from employment will be exempt from taxation in SA provided you are out of the country for one period of at least 60 consecutive days and a cumulative total (which may be broken periods added together) of 6 months of the year. However, all your other income and any capital gains you may make would be subject to taxation in South Africa, even if you are taxed in the country where you are living. You will get some relief from double taxation only if the country in which you live has a Double Tax Agreement with SA.

Contact the tax consultant Fanus Jonck (tax@jonck.net) with your tax queries.