For South Africans abroad the taxation of your income can become fairly complicated depending on your personal circumstances as there a number of different situations i.e. you could have emigrated, or you could be working out of the country etc.

While I am sure that you do not want to become an expert on the taxation of non-resident South Africans you would be interested to understand what opportunities exist to potentially receive a refund from SARS or, in any event, to limit the amount of tax that you pay to SARS.

General Principles.

As South Africa’s tax system is based on residency, you are taxed on your worldwide income if you are considered a resident for tax purposes. SARS apply a couple of tests to determine your tax residence status. (You can read our “Guide to tax issues for individuals leaving South Africa” if you want to know more about this).

However, regardless of what SARS determine, South Africa has entered into Double Tax Agreements (DTAs) with many countries which usually take precedence over the status that SARS determine. So, if SARS determine that you are non-resident for tax purposes then, while you are not taxed on your worldwide income, you will be taxed on any South African sourced income that accrues to you.

If you are deemed to be a resident for tax purposes the provisions of a DTA may override this.

Double tax Agreement

As the name implies, the purpose of a DTA is to avoid you being taxed twice on the same income in different countries i.e. income that is generated in one country but paid to a resident in another

Each DTA has residency provisions (often called tie-breaker provisions) that ultimately determine where income is taxed. So even though tax has been paid in South Africa, South Africa might not have the first right to collect such tax. The DTA will prescribe if the income is exempt in South Africa or not. This is therefore one area where potential tax refunds may exist as income may have been taxed twice.

Unfortunately, the application of DTA is only for a single tax year and the taxpayer is required to reapply each year.

What are the potential opportunities

South African Pension and Annuity Income

Many people retire to countries outside of South Africa but still receive retirement income from South Africa. Until their tax status has been updated to non-resident these amounts will be taxed in South Africa. There are 2 options available

  1. Submit an application to SARS (an RST01 form) to have the DTA of their new country apply which will avoid the amounts being taxed or
  2. Submit an application to SARS (an RST02 form) to have the DTA of their new country apply and claim a refund of tax that has already been paid.

Foreign Tax Credits

If you are still considered as a South African tax resident, you can claim a tax rebate against your South African tax of foreign taxes paid on non-South African sourced taxable income.

For this is apply the foreign income to which the taxes relate need to have been included in your taxable income.

Retirement Lump sum payments

When an individual withdraws a lump sum from a retirement fund it is taxed by SARS in terms of the tax table relevant to Retirement lump sum benefits. Even if you are a non-resident taxpayer this is considered to be from a South African sourced and will liable to be taxed.

If you are a non-resident the DTA between your new country of residence and South Africa will contain provisions with regard to who has the taxing right on these lump sums.

It is therefore possible that you are able to receive a refund for the tax that was deducted by SARS. Even if this is not possible you should qualify for a tax credit for the amount of tax deducted by SARS in your new country of residence.

Withholding tax on interest

A withholding tax at a rate of 15% will be charged on interest from a South African source payable to non-residents.

A reduced rate of tax or exemption may apply under an applicable DTA. The DTA may reduce the rate South Africa is allowed to charge, or even deny South Africa the right to tax the interest payments.

The reduced rates or exemptions under a DTA don’t automatically apply but requires the WTID – Withholding Tax on Interest Declaration to be submitted to the payor of the interest prior to payment of the interest.