Expatriate tax - South Africa

In SA, foreign nationals are usually required to apply for a work permit or temporary visas prior to taking up employment in SA. Work permits or temporary visas for work are issued by the Department of Home Affairs. The different types of visas are, general work visas, critical skills visas and intra-company transfer work permits.

SNG GT currently does not offer the services of assisting with visa applications.

The SA tax year for individual taxpayers begins on 1 March and runs to the last day of February the following year. i.e., 2024 tax year began from 1 March 2023 and will end on 28 February 2024.

Registration

Taxpayers are required to register for tax in SA. A person who becomes liable for income tax must register as a taxpayer with the South African Revenue Service (SARS) within 60 days after becoming liable for tax.

A foreign employee who is taxable on employment income in SA, but who is being remunerated by a foreign employer who does not have an agent having the authority to pay remuneration in SA, must register and pay provisional tax. See other taxes.

There are three ways that one can register for income tax in SA:

• Auto registration for Personal Income Tax - when you register for SARS eFiling for the first time and you do not have a tax reference number, SARS will automatically register you and issue a tax reference number. This is applicable when you have a valid South African ID.
  
  
• Register through your Employer via SARS eFiling - SARS eFiling offers the SARS registration function which allows employers to submit employee income tax registrations to SARS.
  
  
• Visit a SARS Branch – a request to visit the SARS branch could be done through the SARS eBooking system.

The following information is required to register for income tax in SA.

• Proof of residential address (e.g., utility bills, rental agreement), not older than 3 months;
• Proof of bank details, not older than 3 months; and
• Proof of identity, i.e., ID, passport.

Annual tax returns

The Commissioner of SARS gives public notice on an annual basis of the persons who are required to furnish returns for the assessment of normal tax.

How is tax calculated

The rules in the Income Tax Act for determining the taxable income of a person are as follows:

Gross Income
(Less) Exempt Income
(Less) Deductions and allowances
Add Specific Inclusions
Add Taxable portion of allowances (e.g., travel allowance)
Add Capital gains
(Less) assessed loss brought forward (where applicable)
= Taxable Income

Gross Income

Gross Income is the total amount (excluding amounts of a capital nature) received by or accrued to a non-resident/foreigner in each year of assessment, from a source within SA. Generally, it will include the remuneration and bonuses, benefits, and allowances.

Other types of income that may be included as gross income of a non-resident would be, rental income from SA source, interest received subject to certain exemption and dividends received subject to certain exemptions.

Exemptions

• The SA Income Tax Act provides for a number of exemptions and a non-resident individual working in SA may qualify to claim the exemptions in relation to pensions and other employment benefits.
• SA interest earned by a non-resident is exempt from normal tax, unless the non-resident was physically present in SA for more than 183 days during 12 months preceding date of receipt or the debt from which the interest arises is connected to a permanent establishment of that person in SA.
• SA dividends are also exempt from normal tax.
• Royalties earned by non-resident are exempt from normal tax, unless the non-resident was physically present in SA for more than 183 days during 12 months preceding date of receipt or the royalty payment is effectively connected to a permanent establishment of that person in SA.
• Certain qualifying expenditure in relation to employee relocation/resettlement may be exempt from normal tax in SA, if the expenses are reimbursed by the employer to the employee and the employee is able to provide proof of actual relocation expenditure incurred.
• The taxable value of the fringe benefit in relation to the residential accommodation provided by an employer to an expatriate is exempt up to R25 000 per month for a two-year period. The tax-free period commences on the date of arrival of the employee in SA for the purpose of performing the duties of his or her employment. The exemption does not apply if the person was in SA for a period of 90 days in the tax year prior to the year in which that person arrives in SA to perform the duties of employment

The other line items from the calculation of taxable income are covered below under the basis of taxation.

The due date for submission of the individual income tax returns is published annually in the Government Gazette.

The tax season normally starts on the first day of July and ends sometime between October and December (for non-provisional taxpayer) and in January (for provisional taxpayer) as determined by the Commissioner.  i.e., the 2024 filing season may start on 1 July 2024

The SA tax system is based on the principle of adding together all sources of income of a taxpayer into a single sum and applying a progressive tax rate table with a maximum of 45% to determine the final tax liability of the taxpayer on assessment. A progressive tax rate system means that the more income is earned, the higher is the marginal tax rate and more tax is paid on assessment. You will see below the individuals’ tax table for the 2024 tax year (1 March 2023 – 28 February 2024):

A taxpayer earns the following income for the 2024 tax year:

• Basic salary R950 000
• Bonus R150 000
• Pension fund fringe benefit R90 000
• Medical aid fringe benefit R72 000
• Interest income from SA R22 000

SA operates a residence basis of taxation. This means that, if a person is an SA tax resident, he/she will be subject to tax in SA on his/her worldwide income (subject to certain exemptions and exclusions) and worldwide capital gains.

However, if a person is non-resident in SA, he/she will only be subject to tax in SA on income derived from a source within SA and on capital gains derived from the disposal of immoveable property located in SA, or any interests therein.

An individual will qualify as a tax resident of SA if he/she is ‘ordinarily resident’ in SA or if he/she meets the requirements of the ‘physical presence’ test.

There are thus two distinct tests in establishing whether a natural person is resident in SA – firstly, the criterion of whether he or she is ‘ordinarily resident’ in SA, and secondly, the criterion of the requisite physical presence in SA. These two tests are mutually exclusive. Below we will discuss the criteria for the first test followed by the requirements for the second test.

‘Ordinarily Resident’ Test

The first test is the common law concept and applies if it has been established that a natural person is ‘ordinarily resident in SA’ and the answer is positive. If the answer is negative, a second test takes place, based on a ‘physical presence’ test.

An individual will be considered to be ordinarily resident in SA, if SA is the country to which he/she will naturally and as a matter of course return to after his/her wanderings. It could be described as his/her usual or principal residence, or his/her real home.

Physical Presence Test

If an individual is not ordinarily resident in SA at any time during the year of assessment but he/she meets all three requirements of the physical presence test, he/she will be treated as being a tax resident in SA. This test usually applies to non-residents who live in SA.

To meet the requirements of the physical presence test, an individual must be physically present in SA for a period or periods exceeding –

• 91 days in total during the year of assessment under consideration, as well as;
• 91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and
• 915 days in total during those five preceding years of assessment.

If an individual meets all the requirements referred to above, he/she will be a resident in SA for tax purposes, for the tax year under consideration.

Income from employment (or remuneration) may consist of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not for services rendered.
The following items are specifically included as part of an employee’s remuneration:

• Annuities;
• Restraint of trade payments;
• Payment for services rendered, including a voluntary award;
• Compensation for loss of office;
• Lump-sum benefits from retirement funds; 
• Transfers from State retirement funds;
• Commutation of amounts due;
• Fringe benefits;
• Allowances or advances;
• Allowances to public officers;
• Travelling allowances;
• Broad-based employee share plans;
• Vesting of equity instruments;
• Fund surpluses; and
• Dividends.

Stock options:

In SA, the employee is taxed on the gain they make when they are legally entitled to exercise the stock options or when the shares vest. The gain is included in income and the loss must be deducted from income.

The gain or loss is calculated by taking the market value of the shares at vesting date and deduct the cost of the share options (i.e., what the employee paid for the shares).

The employer must apply for a tax directive from SARS to find out how much tax to withhold on the options exercised. The tax directive will indicate how much tax (PAYE) the employer needs to withhold.

The employee will be required to declare and pay capital gains tax (CGT) when they actually sell the shares after the vesting date.

Broad-Based Employee Share Plan:

A ‘broad-based employee share plan’ is a plan in terms of which the equity shares in that employer are acquired by employees for a consideration not exceeding their par value. At least 80% of all employees who are eligible (employed permanently) are entitled to participate, have full voting rights and entitled to all dividends and foreign dividends on those shares.

In SA, a gain made from the disposal of any qualifying equity share or any right or interest in that share is taxed in the employee’s hands as income, if it is disposed of within 5 years from the date of grant.

If it is disposed of after 5 years from the date of grant, the gain will be subject to capital gains tax (CGT).

A ‘qualifying equity share’ is a share which is acquired by a person in terms of a broad-based employee share plan where the market value of all equity shares so acquired by that person does not in aggregate exceed R50 000 in value in the current tax year and the four immediately preceding tax years.

The source of remuneration usually relates to the rendering of services, and it is generally the location where the individual rendered those services.
The courts have held as follows in determining the source of income from employment:

• That it may be accepted that, prima facie, the test for the source of a payment for services rendered is the place where those services are rendered.
• That the salary of an employee who is stationed outside the Republic to render services there on behalf of an SA employer is from a source outside the Republic, even if the contract of employment was concluded or the salary was payable in SA.

Employment income earned by a non-resident for services rendered in SA is subject to the withholding of employees’ tax (also known as PAYE), if paid by a resident employer or a foreign employer who has a branch or permanent establishment (PE) in SA, PE is discussed below.

Employees of foreign employers, working in South Africa, may create a Permanent Establishment (“PE”) risk for such employers, in South Africa. This would result in possible corporate tax or employees’ tax obligations and should be carefully monitored on a regular basis. An analysis of the specific facts would need to be conducted to ascertain any potential risks. 

Employees are subject to normal tax in SA on any taxable fringe benefits that are granted by their employer.

An employer is obliged to withhold employees’ tax, Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) contributions from the taxable value of the fringe benefits granted to the employees.

The foreign employment income exemption is an exemption provided on income earned from employment services rendered outside SA, meaning that this income will not be subject to normal tax in SA.

The exemption is only applicable to an SA tax resident who is an employee and renders services outside SA on behalf of an employer (SA or foreign) for a period exceeding 183 full days (6 months) and a continuous period exceeding 60 full days (2 months) outside SA during the period of 12 months. The exemption is limited to a maximum income of R1.25 million per tax year, this means that income in excess of the R1.25 million will be subject to normal tax in SA, whether or not foreign taxes were paid on that income.

SA has double tax agreements with a number of countries. A double taxation treaty relief may be available between SA and home country, only if the individual is present in SA for less than 183 days in any 12-month period, and his or her remuneration is paid and borne by an offshore entity (i.e., a non-SA).

Where the above requirements are all met, the remuneration will be exempt from tax in SA and subject to tax in home country. It is important, however, that each country’s double tax agreement is examined to ensure that the treaty relief is applicable.

Where an individual has paid foreign taxes on his or her foreign income, they may be allowed to claim foreign tax credits from their SA normal tax liability on assessment. This double tax relief is only available to SA resident taxpayers.

The credit is limited to the foreign tax payable and may not exceed the SA total normal tax payable calculated by applying the ratio of the total taxable income attributable to the foreign tax to the total taxable income.

Individuals are allowed to claim certain expenses incurred during the tax year against the income received. However, the type of expenses a person can claim is dependent on the type of income they received.

Salary earners who receive certain allowances (for example a travel or car allowance or a taxable subsistence allowance) can claim against the allowance.

Individuals can also claim contributions to approved pension, provident and retirement funds limited to R350 000 as well as donations made to approved public benefit organisations, limits apply.

Home office expenses if employment duties are mainly performed in a home office or if more than 50% of remuneration consists of commission or variable payments based on work performance. Other expenses which commission earners can claim include any service fees such as accounting, legal, administration, and sales and marketing fees paid to service providers.

Property owners who earn rental income from a property can claim certain expenses relating to the property. Individuals involved in a trade (a sole proprietor, partnership or a farmer, etc.) can claim certain expenses relating to the production of that income.

A Medical Scheme Fees Tax Credit (also known as an “MTC”) is a rebate which which is used to reduce the normal tax payable by individual persons (who pays medical aid contributions) on assessment. This credit is non-refundable, should it exceed the normal tax payable.

For the 2024, R364 per month, per member is claimable for the individual who is the main member of the medical aid and the first dependent. R246 per month, per member is claimable for any additional member. The credit is not applicable to a medical insurance.

The employees’ tax withholding regime (known as PAYE or Pay-As-You-Earn) is in essence a withholding tax system, which places the obligation upon the employer or representative employer to withhold employees’ tax via the payroll and to pay this over to SARS, on a monthly basis.

Companies are required to withhold PAYE from any amounts paid to non-resident independent contractors.

SARS prescribes that part time and seasonal workers who work less than 22 hours a week must be taxed at 25%. However, if they can prove to their employer that they don’t work for anybody else, or should they start to work more than 22 hours per week, then tax should be deducted per the normal tax tables as if they were in full time employment.

The payment to SARS must be made by the 7th of each month following the month in which the amount of tax was deducted from the employee. For an example the amount of employee’s tax deducted in the month of February should be paid over to SARS by the 7th of March.

SA does not operate a social security payment system as such, however, there is a compulsory levy for the purposes of funding education and training called Skills Development Levy (SDL). The amount payable is 1% of the leviable amount (taxable income) and it is due by registered employers.

There is another compulsory contribution to fund unemployment benefits called Unemployment Insurance Fund (UIF). The employer and employee are liable for the contribution of 1% each.

Both levies, together with employees’ tax are payable to SARS by the 7th of each month following the month in which the amount was deducted.

Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when a taxpayer disposes of an asset on or after 1 October 2001 for proceeds that exceed its base cost.

A non-resident is liable for CGT only on immovable property located in SA or assets of a 'permanent establishment' (branch) in SA. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.

Individual taxpayers are granted with an annual exclusion of R40 000 from their total capital gain or capital loss. The total capital gain is taxed at a lower rate than normal income – because only a portion of the capital gain (currently 40%) is included in taxable income, and not the full gain.

A purchaser of immovable property (which has been disposed of in excess of R2 million) is obliged to withhold 7.5% from the purchase price payable and pay the tax to SARS, if the seller of the property is a natural person who is not resident in SA. The amount withheld by the buyer serves as an advance payment towards the seller’s final income tax liability.

A non-resident seller of immovable property may be entitled to request that tax be withheld at a lower or even zero rate, depending on the facts of each case.
The payment of the withholding tax needs to be made to SARS within 21 business days from date of Transfer.

Provisional tax is not a separate tax. Provisional tax payments are advance payments against a taxpayer’s estimated final tax liability for the year. These payments are usually payable if a foreign employee earns taxable income that is not subject to employee’s tax, for example, rental or interest income, or if employee is not paying PAYE. On assessment the provisional payments will be off set against the liability for normal tax for the applicable year of assessment.

Two provisional tax returns and payments are required:

• The first provisional tax return and payment, due on or before the last day of August each year.
• The second provisional tax return and payment, due on or before the last day of February of the following year.

A third payment is optional, this must be done after the end of the tax year, but before the issuing of the assessment by SARS.

Resident independent contractors will be required to file provisional tax returns, as no PAYE is withheld from amounts paid to them.

Securities transfer tax (STT) is levied for every transfer of any security issued by a close corporation or company incorporated, established or formed inside South Africa; or a company incorporated, established or formed outside South Africa and listed on an exchange. STT is also levied on any reallocation of securities from a member’s bank restricted stock account or a member’s unrestricted and security restricted stock account to a member’s general restricted stock account.

STT is levied at the rate of 0,25%. Either the member or the participant or the person to whom the security is transferred is liable for the tax.

Listed securities: STT must be paid by the 14th day of the month following the month during which transfers of listed securities occurred.

Unlisted securities: STT must be paid within two months from the end of the month in which the transfer of the unlisted security took place.

Transfer Duty is a tax levied on the value of any property acquired by any person by way of a transaction or in any other way.

The person acquiring the property and the person in whose favour or for whose benefit, any interest in or restriction upon the use or disposal of property has been renounced are responsible for paying the transfer duty.

Duty is payable within six (6) months from the date of acquisition.

Estate Duty is levied on the estate of the deceased person. Estate duty applies to the worldwide property and deemed property of a natural person who was ordinarily resident in SA and on SA property of non-residents persons.

The Estate Duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million.

Estate Duty is due within 1 year of date of death or 30 days from date of assessment if assessment is issued within 1 year of date of death.

Dividends Tax is a tax on shareholders (beneficial owners) when dividends are paid to them, and it is withheld from their dividend payment by a withholding agent. A withholding agent can either be the company paying the dividend or a regulated intermediary.

The rate of Dividends Tax is 20% of the dividend paid.

Dividends tax withheld should be paid to SARS on or before the last day of the month following the month in which the dividend was paid.

The withholding tax on interest (WTI) is a tax charged on interest paid by any person to or for the benefit of a foreign person from a source within SA The foreign person is responsible for the tax, but it must be withheld by the person making the interest payment to or for the benefit of the foreign person.

Interest paid is taxed at a final withholding tax rate of 15%.

Withholding tax on interest should be paid to SARS on or before the last day of the month following the month in which the interest was paid.

The withholding tax on royalties (WTR) is due on any amount of royalty paid to or for the benefit of a foreign person from a source within SA. The foreign person is liable for the tax, but the tax must be withheld from the royalty payment by the person paying it to the foreign person (i.e. the withholding agent).

A royalty is any amount that is received or accrues in respect of:

• The use, right of use or permission to use any intellectual property,
• Imparting or undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or
• Rendering of or the undertaking to render any assistance or service in connection with the application or utilisation of that knowledge or information.

Royalties paid is taxed at a final withholding tax rate of 15%.

Withholding tax on royalties should be paid to SARS on or before the last day of the month following the month in which the royalties were paid.