The critical challenges awaiting us in the next couple of months are: Provisional tax filing at the end of February for either tax residents working for a foreign company (albeit a nil return), or non-resident’s exit tax on unrealised capital gains tax or their provisional tax on foreign earn income above the R1,25m threshold. The 2020 tax returns for these taxpayers was due on 29 January 2021
Hugo van Zyl, a Charted Accountant and Master Tax Practitioner, Independent Tax Consultant and Vice Chairman of the Institute of Tax Practitioners Committee Regarding Personal Tax is providing advice regarding the:
Tax deadline for provisional taxpayers on was on the 29th of January; and the new legislation on Expat Tax with an important deadline looming for applications to the South African Reserve Bank on the 28th of February 2021.
South African tax residents, employed for a foreign company are deemed, in terms of the Income Tax Act, to be provisional taxpayers. Any person subject to expat tax rules, therefore need to file provisional tax returns twice a year.
All provisional taxpayers also needed to pay attention to the tax deadline that was on the 29th of January 2021. The notion not to tax file as foreign earned income is tax exempt, is thus incorrect and the oversight needs to be corrected. In other words, tax residents who receive employment income that is not subject to PAYE always need to tax file. Employees working for a South African employer is normally not a provisional taxpayer, except when you have investment income or rental income. Expats working abroad, but paid from South Africa, should have seen the new PAYE deduction rules being applied. The PAYE deduction may indeed have been reduced by pay roll taxes paid to the foreign country.
Van Zyl says that most expats, not having ceased tax residency in South Africa, is not aware of their obligation to tax file and claim the foreign earned exemption. It is not an automatic or assumed exemption, it needs to be claimed and SARS may indeed send verification requests.
Resident expats will pay Expat Tax for the first time this (February 2021) tax year as it only commenced on 1 March 2020. The first R1,25 mil is tax-free, and everything above that is taxable. Van Zyl reminds expats that the SA tax rules apply i.e. school fee allowances, housing allowances, medical and retirement fund contribution paid by the employer and all traveling allowances are taxable fringe benefits.
The first provisional tax payment was due in August 2020 and the second payment is due in February 2021. Tax Residents expats should have submitted their 2020 returns before 29 January 2021 and file provisional tax returns, albeit a nil return. Not filing a tax return may have serious implications.
The biggest challenge that tax practitioners experience with Expat Tax is their clients aggression and emotions regarding South Africa. It often is politically driven and there are many misleading tax petition groups. Hugo van Zyl believes that it is mainly due to misinformation and expats is best advised to consult experts and stay clear of emotional outburst and Facebook groups driven by political agendas. It is imperative to know the rules and to know who is a tax resident and who is not. If you are not a tax resident, then you are not subject to the new Expat Tax law yet you may still be obliged to tax file as your tax number was not cancelled. Ceasing to be a tax resident does not equate to the cancellation of your SARS tax number.
Here are some practical examples.
South African taxpayers living in Dubai earning SA rental income must tax file in SA, despite having an Emirates ID for more than 183 days. It is true that the double tax agreement (DTA or tax treaty) deems them to be exclusively UAE tax resident. These individuals have a tax payment obligation in SA. Should your permanent home in South Africa not be available to you, as you rent it out, then you remain a taxpayer (albeit tax non-resident) in South Africa, and you now need to tax file. It is true that the DTA may limit the SARS right to tax interest earned in SA, but SA rental income and the capital gain on SA properties are always taxable in SA.
If you cease to be a SA tax resident because you are deemed a tax resident in Dubai, you have to pay exit tax to SARS based on the unrealised capital gains on most of your worldwide assets. Luckily, excluding the gain on the home that you lived in,now rented out. Once again, if you earn rental income in SA, you have to submit their 2020 tax return before 29 January 2021, and must file their second provisional tax in February. They will then not pay the ex-pat tax provided the tax emigration process and exit tax compliance were done correctly.
The various lobby groups, Facebook groups and pure gossip causes tremendous confusion. The tax agreement with the Emirates explains that you are only seen as a UAE tax resident when the Emirate is your permanent (and this is the only one available to you) or if the UAE home your habitual home. An habitual home test applies to SA resident expats that owns a SA property always available to them (i.e. holiday home) but they clearly return to their UAE home, most often i.e. their rest and recuperate place of residence is in the UAE as the SA home is an incidental and holiday home.
However, one of the main points of confusion is the rules are different for different countries. The double tax agreements are normally deemed “above” the South African tax law, i.e. should there be conflict the treaty applies. The SA Income Tax Act does define a tax resident to EXCLUDE a person deemed to exclusively tax resident in a treaty country. For the UAE and UK, the days can be 183 (or less in the UK) but for expats on non-immigration USA visas, the deemed USA tax resident time line is 3 (three) USA tax years.