 South Africans have always been keen to work and live abroad, and this trend looks set to strengthen as the country’s political and economic fortunes remain precarious.
A recent study shows that even with the rise of digital working, 59% of South Africans (56% of young people and 61% of highly educated people) are willing to relocate. But, says Thomas Lobban, Legal Manager for Cross-Border Taxation at Tax Consulting South Africa, working abroad creates a host of potential tax challenges for which a strategy must be developed. “Most taxation challenges related to the expatriate life can be satisfactorily resolved but the right steps need to be taken from the begining,” he says. “It’s never too early to speak to a tax consultant who understands the intricacies of expatriate taxation—it may be too late if you leave things to filing season.” In terms of a new tax law effective from 1 March 2020, only the first R1.25 million of employment income earned in foreign countries may be exempt from tax in South Africa, provided that more than 183 days are spent outside the country in a 12-month period, and at least 60 of those days are continuous. Any income above R1.25 million will be taxed in South Africa at the individual’s relevant marginal tax rate, but he or she may further be able to claim a proportional credit for taxes already paid in the foreign country on that income. The overarching principle is that individuals (and corporations) should not have to pay tax twice on the same income or assets. To that end, South Africa has double taxation agreements with 83 countries (find a full list on the SARS website). However, says Mr Lobban, what most people do not realise is that a double tax agreement does not just automatically kick in—this relief must be claimed, and the taxpayer must be prepared to provide the necessary evidence to back the claim up. “Many people think they can simply decide where they are tax resident but, in truth, their status will be determined by the statutory and other criteria the tax authorities use to determine tax residency,” he explains. “It can often happen that an individual is deemed to be a tax resident of both South Africa and the other country.” In that instance, a so-called “tie-breaker test” may be applied, in terms of which the circumstances of the taxpayer are considered in terms of various criteria. The first of these is where the taxpayer has a permanent home available that he or she can access at any time, and/or where his or her vital personal and economic interests are located. If that is not conclusive, then the individual’s habitual abode over an extended period would be considered, and here the number of days spent in each place would be relevant. A final consideration would be nationality. “SARS almost inevitably audits expatriate tax returns, and this year we are seeing a huge emphasis on expatriates along with high-net-worth individuals,” Mr Lobban concludes. “Once the audit starts, the clock is ticking, so you need to have your plan and your evidence assembled well before filing season starts, or risk finding yourself paying much more tax than you expected or otherwise landing on the wrong side of SARS.” ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa
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 Authored by: Thomas Lobban, Legal Manager, Cross-Border Taxation at Tax Consulting South Africa.
If a South African expatriate had to describe the year 2020 in one word, “uncertainty” would no doubt rank as one of the most appropriate. Even before the world was hauled into turmoil by the COVID-19 pandemic, South African expatriates were already faced with the many unknowns that would be ushered in by the “expat tax” era. The situation is exacerbated by the fact that taxpayers have unimpeded access to quick and easy tax advice peddled by “experts” on social media. Worse yet, these pundits often have contradicting views, which is to be expected, as it involves an area of taxation that is multi-dimensional and quite complex. We have seen particular discord in relation to the relief provided under a Double Tax Agreement (DTA), specifically where taxpayers wish to avail themselves to the relief under the residency article of the DTA. The below points aim to clarify the most prevalent misconceptions in these cases. 1. Residency v taxing rights A fundamental clarification that must be made is how the DTA provides relief. A less common misconception is that where there is a DTA between the host country and South Africa, the income earned in the host country is not taxable in South Africa because the host country has the sole taxing right. This is incorrect. When it comes to income earned from employment, most DTAs give the sole taxing right to the country of residence, unless the employment is exercised in a host country, in which case (subject to certain exclusionary circumstances) both countries will have a right to tax the income in question. The result is that, as a South African tax resident, your income remains subject to tax in South Africa. The fact that the host country has a dual taxing right might bring relief when it comes to claiming tax credits in South Africa, but this is not the form of relief that informs our current discussion. The relief that is far more powerful is that provided under the residency article of the DTA. If applied correctly, this article may override the provisions of the Income Tax Act, which means that a person may be regarded as non-resident by virtue of the DTA, irrespective of the fact that they meet the residency tests under domestic tax law. On the strength of the DTA, the taxpayer will be treated as a non-resident for a particular period. 2. DTA relief applies automatically The most dangerous misconception is likely that the mere existence of a DTA between South Africa and a taxpayer’s host country means they qualify automatically for DTA relief. This is incorrect. The truth is that each taxpayer’s facts must be assessed individually to determine if the underlying requirements of a certain provision of the DTA have been satisfied. Assumptions are particularly problematic when it comes to the residency article, as the underlying requirements are very much fact driven. Moreover, whilst DTAs are generally uniform, the residency article tends to have subtle differences across the DTAs concluded with different contracting states, making a blanket approach even more perilous. 3. No requirement to file returns Flowing from the discussion under the previous point, taxpayers often mistakenly believe they are absolved from filing returns when they rely on the DTA. This is incorrect. DTA relief is an exemption that must be “claimed” and, unfortunately, SARS does not allow taxpayers to make this determination unchecked and unchallenged. Same as when a taxpayer claims the exemption under section 10(1)(o)(ii) of the Income Tax Act, as a resident under South African law, you are required to file your return and to claim the relevant relief. This provides SARS with the opportunity to verify if you satisfy the requirements of the exemption. Where you do not file a return, you are making a material non-disclosure. The effect is the statute of limitations for making additional assessments does not apply, meaning SARS can re-open any historic tax period. A potential misconception in itself is that if the DTA applies to your facts, you qualify for the relief until your circumstances change. Theoretically, this may be the case, but practically, on account of your filing obligation, the determination of the applicability of the DTA to your facts will be done annually. 4. Residency certificates guarantee relief Residency certificates generally state that a taxpayer is considered to be resident for purposes of tax in the host country. Certain advisors are of the belief that such a certificate means they are no longer resident in South Africa or, again, that they are automatically considered exclusively resident of the host country under the DTA. This is incorrect. The residency certificate confirms that the taxpayer is considered resident for purposes of the host country’s domestic tax legislation. This does not override the fact that a taxpayer is resident under the Income Tax Act. At best, this will mean the taxpayer will have dual-residency status, which then means the taxpayer is eligible to apply the tie-breaker test under the residency article of the DTA. In other words, the residency certificate my serve as your ticket to the ball game, but that is where it stops. It is entirely possible to possess a residency certificate from your host country without qualifying for DTA relief. In the same vein, one must not conflate a tax residency certificate with a residency permit – this is one of the biggest missteps fly-by-night advisors make. Where you claim DTA relief on the strength of the latter, you may be in for a nasty surprise. 5. You are still liable for difference between host country and SA tax A misunderstanding that arguably emerged in Middle Eastern countries is that when DTA relief applies, you are still liable to pay the difference in taxes in South Africa. The misconception seems to flow from a conflation of DTA principles and the claiming of tax credits. This is incorrect. Generally, where DTA relief is claimed correctly, the taxpayer is no longer subject to tax in South Africa on employment income earned in respect of services rendered in the host country. This is not affected by the taxes, or lack thereof, payable in the host country. Take away Historically, before the “expat tax” was introduced, DTA relief was likely under-utilised by South African expats. Arguably, this is why there is a lack of understanding in the market of how it applies. Nevertheless, the potential relief afforded under a DTA is profound – it is possible to exempt your foreign earned employment income entirely. But this must be coupled with a word of caution – the DTA is not an elixir that guarantees absolution from South African taxation. Tax practitioners who claim DTA relief without understanding the underlying legal principles and the practical requirements do so at the peril of their own clients. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa  Authored by: Roxanna Naidoo, Admitted Attorney and Lisa Mihalik, Tax and Legal Administrator at Tax Consulting SA
A new set of tax law amendments, signed by President Cyril Ramaphosa, and promulgated on 20 January 2021 has granted SARS all the legal fire power it needs to impose criminal sanctions on taxpayers who neglect their tax affairs. Criminal Negligence Prior to the promulgation of the Tax Administration Laws Amendment Act, 2020 (Amendment Act) a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause.” In other words, the law required an element of intent; where negligence or ignorance caused your administrative non-compliance, you would have gotten off with a slap on the wrist. Henceforth, your intention does not matter – where you “negligently” fail to comply or make certain mistakes on your taxes you commit an imprisonable criminal offence. Ignorance, a defence commonly used by taxpayers, will no longer fly – SARS will from now on hold you to a higher standard of care. Strategically speaking, this is a bold, brilliant move from the SARS-Treasury team, as the simple inclusion of the word “negligence”, now allows for the offence criteria to be broadened to such a degree that even the slightest mistake made in one’s compliance could result in criminal prosecution. The 11 Mistakes As the saying goes “we all make mistakes,” but when it comes to mistakes on your taxes each of the 11 mistakes listed in the Amendment Act can result in up to 2 years in prison. So, it is vital that you educate yourself on precisely what they are to remain unmistakably compliant and lawful. What are they?
The Amendment Act just demonstrates that the new SARS Commissioner and the SARS-Treasury team have adopted a complete no-nonsense approach to non-compliance. Given how easily (and how often) these mistakes can happen, and how hard they will be to correct, taxpayers should exercise extreme accuracy and vigilance when filing their taxes. It may serve you well to appoint a qualified tax consultant or experienced tax attorney to ensure you do not end up on the wrong side of these new rules. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa  Authored by: Thomas Lobban, Legal Manager for Cross-Border Taxation at Tax Consulting SA
With South Africa and the world at large facing an economic downturn as a result of various factors, not the least of which being the Covid-19 pandemic, SARS is on a mission to plug the existing gaps in tax revenue collection and compliance. It is no stretch of the imagination to believe that cryptocurrency must be high on the list of SARS’ compliance concerns, given how it has existed under little-to-no regulation and these transactions are often easily concealed. Indeed, cryptocurrency has been steadily increasing in its popularity as a speculative investment by South Africans and, it appears, is now squarely within SARS’ focus. A Request by SARS When a taxpayer files a tax return, SARS may (in many cases) send a request for verification or “audit request” in which it seeks clarification and / or supporting documentation from a taxpayer. The information sought by SARS is inevitably linked to the disclosures made by the taxpayer in that return. This is a preliminary step taken by SARS in audit proceedings, and it is crucial that a taxpayer prepare themselves accordingly for this ahead of time. Tax Consulting South Africa has recently been approached by taxpayers who were presented with a SARS audit request. These requests posed standard questions as would be expected on the taxpayers’ returns, but also went further to request the following:
While this is certainly a first, it is certainly the kind of approach by SARS that taxpayers should expect moving forward. Playing by the Rules In the first instance, taxpayers should already know that it is a criminal offence where a taxpayer wilfully fails to submit a document or information as requested by SARS or makes a false statement to SARS. It is no longer material whether the taxpayer concerned had justification for such non-disclosure or false statement made. This means that a taxpayer who fails to correctly disclose their cryptocurrency-related income or comply with an audit request by SARS to this effect may be convicted for an offence and be liable to a fine or imprisonment for up to two years. In light of this recent change to our tax laws, it is feasible to understand that SARS is in the process of ensnaring culpable taxpayers who have not disclosed their cryptocurrency-related trading profits and / or losses. While further cryptocurrency regulation is certainly on its way, and with the international Common Reporting Standards now in full swing, audit requests are still a primary weapon in SARS’ arsenal and the walls are closing in on non-compliant cryptocurrency traders. So, when is SARS disclosure required? A misconception often harboured by taxpayers is that they do not owe any tax liability on their cryptocurrency-related income and do not need to make any disclosure to SARS to this effect. This is, unfortunately, not the case. When SARS Disclosure is Required From the outset, it should be known that all cryptocurrency transactions will bring tax consequences for a taxpayer. A tax disclosure obligation does not only arise where a cash balance is withdrawn from a trading platform – all transactions that have been made (whether a transaction of cryptocurrency for money or cryptocurrency for other cryptocurrency) must be disclosed to SARS. Taxpayers should take the time to consider and understand the tax consequences when dealing with cryptocurrency, in order to prevent being caught off guard upon a SARS inquiry to this effect. Any taxpayer who has not disclosed cryptocurrency held or traded should immediately seek professional guidance in getting their tax affairs in order. Alternatively, where you have never bought or sold cryptocurrency previously, it is important to proceed with caution when responding to an audit request. As has been well reported, SARS is well within their rights to compel a taxpayer to respond to an audit request. Failing to disclose any relevant amounts or respond to an audit request correctly could well result in substantial penalties or harsh criminal sanctions. There is little doubt that SARS is pursuing non-compliant cryptocurrency traders, so it is best for these taxpayers to stay ahead of the curve and ensure that their tax affairs in order beforehand. Click here to view the SARS audit request mentioned above. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa |
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