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Navigating Your South African Tax Obligations as an Expat
How can we assist expatriates?
Living and working abroad is an exciting opportunity, but for South African tax residents, it comes with important financial responsibilities. South Africa uses a residence-based tax system, which means you are taxed on your worldwide income, regardless of where it is earned.
Even if you have not formally ceased your tax residency with SARS, there are provisions that can prevent you from paying tax twice on the same income. Understanding these rules is key to managing your finances effectively while working overseas.
The First Step: Checking for Section 10 Exemptions
Before considering Double Taxation Agreements, we first assess if your foreign employment income can be exempted from South African tax under Section 10(1)(o) of the Income Tax Act.
Section 10(1)(o)(ii): The Primary Exemption for Expats
What about Section 10(1)(o)(i)?
This is the most common exemption for South Africans working abroad. If you meet the criteria, the first R1.25 million of your foreign employment income is exempt from South African income tax. Any amount earned above R1.25 million will be subject to normal tax in South Africa.
To qualify for this exemption, you must meet the “days test”:
You must be outside of South Africa for a total of more than 183 full days in any 12-month period.
During that 183-day period, you must have at least one continuous period of more than 60 full days outside of the country.
It’s important to note that this exemption only applies to income from a formal employment contract. It does not apply to independent contractors or self-employed individuals.
This is a more specific exemption that generally does not apply to most expatriates. It is aimed at officers and crew members working on board a ship that is engaged in international transportation or certain other specified activities. For most South Africans working abroad in other industries, Section 10(1)(o)(ii) is the relevant exemption to consider.
Double Taxation Agreements (DTAs)
If you do not qualify for the Section 10 exemption, or if your income exceeds the R1.25 million cap, the next step is to look at the Double Taxation Agreement (DTA) between South Africa and your country of residence.
A DTA is a treaty between two countries to prevent the same income from being taxed in both jurisdictions. It does not mean you are automatically exempt from tax; instead, it determines which country has the primary right to tax your income.
DTAs often include a “tie-breaker” test to determine where you are a tax resident if both countries claim you as one. This test considers factors like:
Where you have a permanent home.
Where your personal and economic ties are stronger (centre of vital interests).
Where you have a habitual abode.
If the DTA determines that you are a tax resident of the foreign country, your foreign employment income may be exempt from tax in South Africa.
Foreign Tax Credits (Section 6quat)
When your foreign income is taxable in both South Africa and the foreign country (for instance, if your income is over the R1.25 million exemption threshold), you can claim a foreign tax credit.
This allows you to reduce your South African tax liability by the amount of tax you have already paid in the foreign country on that same income. This is done by claiming a rebate under Section 6quat of the Income Tax Act, which ensures you are not unfairly taxed twice. You will need to provide proof of the foreign tax paid to SARS.
