Expats urged to sort out taxes
• Sars puts greater focus on non-resident tax status
Tax experts have urged South Africans living and working abroad to regularise their tax affairs, as growing numbers of young professionals head out to take advantage of opportunities offshore.
The Treasury has in recent years made it easier for individuals to emigrate, but also to return – if they applied to the SA Revenue Service (Sars) for nonresident status and so don’t have any liabilities to the taxman.
This comes ahead of Sars’ announcement on April 2 of the final revenue collected for the tax year that ends at midnight on March 31.
February’s budget projected tax revenue would come in at R1.73-trillion for the 2022/23 fiscal year, about R56bn lower than originally projected. But the final tax take often comes in slightly higher or lower than February’s estimates, depending on what happens in the last few days before Sars closes the books for the year.
Among the many details Sars normally provides at its year end briefing is how many individual taxpayers emigrated for tax purposes, which last year dropped to 862, from 5,558 in the previous year.
But while fund managers such as Coronation and Stanlib have lately warned of a flight of skilled professionals and high net worth individuals, the tax emigration numbers are only a small fraction of economic emigration – and many of those individuals left SA in previous years.
FORMAL PROCESS
“Only a small minority of the applications we do are planned emigrations; the rest are people who left years ago and are now regularising their tax status,” Mazars SA director of tax consulting Elzahne Henn said in an interview this week.
“There are a lot of younger people just exploring opportunities abroad. They may intend to return some day, but there is now more focus on the formal process of declaring non-resident status with Sars,” she said.
This reflected concerns about the foreign employment exemption, with individuals living abroad not wanting to end up in a situation where Sars might tax income from their foreign employment.
The shift goes back to changes the Treasury announced some years ago, when it implemented new rules that removed the complete exemption from income tax for individuals working outside SA for more than 183 days and instead exempted income only up to R1m — later increased to R1.25m.
The limited exemption was intended to remove the “free for all” which was being exploited, for example, by individuals who still had homes and families in SA but made sure to work outside the country for 184 days – especially in Middle Eastern jurisdictions such as Dubai and Saudi Arabia, which have zero personal income tax – to avoid tax.
The shift was also triggered when the Treasury in 2020 ended
“financial emigration”, which required individuals who left and wanted to take their money out to close their SA bank accounts and formally emigrate, making it difficult to return.
Instead they now simply have to apply to become non-tax resident – though this requires that they pay capital gains tax on their assets.
“It used to be a huge barrier for people to come back to SA;
now if they want to go we make it easy but we also make it easy to come back,” said Treasury deputy director-general Chris Axelson.
DOCUMENTS
Henn said that many of the individuals working abroad who have been getting the foreign income exemption qualify as genuine non-residents for tax purposes, and many have applied to Sars for the nonresident certificate.
It is a process that requires extensive documentation to be submitted to Sars, which since 2021 has also required individuals to document when they left SA and demonstrate they have homes and lives abroad.
Henn this week urged SA individuals living abroad long
term not to leave it too long to submit applications to Sars for non-resident tax status. “You don’t want to be trying to find your documents going back to the 1990s,” she said.
Mazars now has a couple of staff working full-time on these non-resident applications, with applications to regularise tax status keeping its emigration team extremely busy.
There is effectively no exchange control for individuals, who can take out up to R10m a year, and can apply to take out more than that if they need to, as long as they are tax compliant.
Henn said for many high net worth individuals, the length of time Sars took to process applications was a problem, especially if they needed to take out cash for property or other transactions that were time sensitive. High net worth individuals who apply for tax clearance to take out more than R10m also frequently are subject to tax audits by Sars, she said.