Residence-based tax system
From 1 March 2001, South Africa moved from a source-based to a residence-based tax system for individuals. This meant that tax residents would be subject to tax on worldwide income (excluding certain exemptions or exclusions) and non-residents would be subject to tax on income from a source within South Africa.
Who is a tax resident?
An individual is a resident for tax purposes in South Africa either by way of ordinarily residence or by way of physical presence. The concept of “ordinarily residence” is not clearly defined and the determination of whether or not an individual is an ordinarily resident for tax purposes must be done on a case-by-case basis. A number of factors must be taken into account to make such a determination. Interpretation Note 3 (Issue 2): Resident: Definition in relation to a natural person – ordinarily resident sets out the list of factors that will be taken into account to determine whether an individual is ordinarily resident for tax purposes in South Africa.
An individual can also become a tax resident by way of physical presence. Please, refer to Interpretation Note 4 (Issue 5): Resident: Definition in relation to a natural person – physical presence test.
An individual who is deemed to be exclusively a resident of another country for purposes of a tax treaty is excluded from the definition of “resident”. It follows that while an individual may qualify as a resident under the ordinarily resident or physical presence tests, that individual will not be regarded as a resident for South African tax purposes if that person is a resident of another country when applying a tax treaty.
SOUTH AFRICAN SEAFARERS AND YACHTIES
In determining the tax liability for those working at sea, be it on fishing vessels, exploration ships, luxury liners, yachts, tankers or container ships, a few factors need to be taken into consideration.
There are various categories that a seafarer may fall into depending on their own unique situation, and most are unaware of these differences, this often creates uncertainty and a tendency for people to get the wrong advice.
The complexity is highlighted by the fact that seafarers work alongside colleagues with different tax circumstances, i.e., one could be exempt from tax in SA, whilst the other taxable. Something as simple as the mere position held by the seafarer, or the title on the vessel can affect this. Thus, seafarers need to understand the law and how it applies to their individual circumstances to be able to protect their foreign earned income. Get full expert advice.
SARS and the South African Expatriates
Residents are required to observe the 183 and 60 full days requirements in order to qualify for the exemption. Provided the “days” requirements are met, only the first R1.25 million of foreign employment income earned by a tax resident will qualify for exemption with effect from years of assessment commencing on or after 1 March 2020. Any foreign employment income earned over and above R1.25 million will be taxed in South Africa, applying the normal tax tables for that particular year of assessment.
There are three main exemptions that a seafarer can claim, depending on an individual’s situation and ability to meet the legal requirements relating to each of the exemptions. In order to qualify for these exemptions, there must be an employer-employee relationship as well as remuneration received in respect of services rendered.
The first seafarer exemption relates to officers or crewmembers on board a vessel, with foreign employment, whereby the vessel is involved in the international transportation of passengers/goods for reward and the taxpayer has been outside of South Africa for more than 183 days in any 12-month period, during which remuneration was received. Meeting the requirements of this exemption allows for full exemption from tax in South Africa on the foreign employment remuneration rendered. [Section 10(1)(o)(i)(aa) of the Act (“the first seafarer exemption”)]
The second seafarer exemption relates to officers or crewmembers on board a vessel, whereby the vessel is engaged in prospecting, exploration, mining of minerals, or production of minerals from the seabeds outside of South Africa, and the taxpayer has been outside of South Africa for more than 183 days in any 12-month period, during which remuneration was received. This exemption only relates to those seafarers solely employed for the vessel’s navigation. Meeting the requirements of this exemption allows for full exemption from tax in South Africa on the foreign employment remuneration rendered. [Section 10(1)(o)(i)(bb) of the Act (“the second seafarer exemption”)]
The third exemption applies to all South African taxpayers who earn foreign employment income, and the taxpayer has been outside of South Africa for more than 183 days, of which 60 are consecutive days, in any 12-month period in which remuneration was received. [Section 10(1)(o)(ii) of the Act (“the expat exemption”)]
Conclusion/ Recommendation
When registering for tax, one will be seen as a new registrant and will have a date of liability from date of registration. From this date going forward, the taxpayer will need to file tax returns, depending on their tax residency status, either on worldwide income or merely South African sourced income.
The longer one is non-compliant, the higher the chances this will impact the taxpayer negatively. Thus, if one meets the requirements to be registered for tax in SA, this should be done without fail or delay. Once this is done, the profile must be kept compliant, with income being declared annually and the correct tax relief methods / exemptions being used. And it is not always that you will pay taxes when you submit your returns. As long as you are an individual who is a South African tax resident earning income, SARS can still find you and you will still be liable to pay taxes in South Africa.
For further information, please do not hesitate to contact us.
Gervase Mwango
(CA-ACCA, Tax Practitioner No. PR0093056)
