Tax Filing Season — South Africans Abroad, Are You Ready?
The opening of the personal income tax annual filing season on 1 July 2021 marks the first full filing season, which takes into account the amended legislation for South Africans abroad. On 1 March 2020, the foreign employment income exemption was capped to R1.25mil (taking into account the entire package offered to them), if specific requirements are met. This has left many South Africans working abroad, with a potential tax liability in SA.
This makes the opening of this tax filing season more daunting than usual, as one would previously have been totally exempt from tax under the exemption. SARS now has the opportunity, more so than ever, to come knocking for its pound of flesh.
SARS Ramping Up for Revenue Collection
Over the past years, and more recently the past months we have seen amendments to legislation and proposals which show a clear indication that SARS will be using its teeth going forward.
Last year, there was an amendment to the Tax Administration Act which provided for prosecution of taxpayers even in instances whereby they have made a mistake with their declarations to SARS. While mistakes are common amongst taxpayers when filing, this should now more than ever be avoided at all costs, necessitating a professional to assist.
In the latest Budget Review in February 2021, R3 billion was allocated to SARS to assist in the investigation of High-nett worth individuals. This process has already started with a number of taxpayers having already received notices from SARS enquiring about their wealth worldwide. With the Common Reporting Standards in full swing, information on income and assets globally is being shared with SARS, with nowhere to hide. Previously undisclosed assets and income are going to become a thorn in the side of taxpayers where they have not removed this from the net of SARS by ceasing tax residency (where they can).
Finally, SARS has been on a campaign to recruit hundreds of highly skilled employees who can assist in modernising the tax revenue system and recovery of revenue across the board. SARS in recent years has lost many of its prominent players, reducing its capabilities, but this seems to be coming to an end. Watch out for deeper more personalised audits in the future.
How to Mitigate Your Tax Risk
For those South Africans abroad, there are a number of options to reduce risk and potentially remove tax liability, if done correctly:
- The first step is to ensure that your SA tax profile is fully up to date and compliant. Thus, all tax returns should be filed and nothing owning to SARS;
- If you remain a tax resident of South Africa based on our local residency tests and/or a Double Taxation Agreement, one should look to options to reduce liability in SA, generally using the foreign employment exemption of R1.25million;
- If one is outside of South Africa, but intends to return on a permanent basis in the future, then under our local residency test (the Ordinarily Resident test), one would remain tax resident of SA. However, if there is a DTA in place with SA and the foreign jurisdiction, there is the possibility to cease tax residency via the DTA and thus have no tax on foreign income in SA. This is however an annual process and very specific requirements must be met — your SA tax return must still be filed, and foreign income declared.
- If one has left SA and has no intention of returning on a permanent basis, the correct route would be to cease tax residency under our local tests. This would be done by way of what is known as the new financial emigration process / tax emigration (these are one in the same). This would include an application to SARS with a declaration to cease tax residency. One would need to provide objective evidence to be able to prove to SARS that they do not meet the local residency tests. In this instance, no foreign income or assets will need to be declared to SARS thereafter, and there would be no tax obligation in SA on foreign income and assets. This is the cleanest route out.
Approach SARS with Clean Hands
To be able to correctly mitigate risk and liability, one needs to approach SARS with clean hands. Thus, all historic non-compliance must be resolved and then the use of the above solutions will be viable.
At this point, the number of non-compliant taxpayers is astounding, which is the very reason for the various changes in legislation, so that SARS can start collecting revenue and having taxpayers prosecuted where the non-compliance is serious enough.
Now is the time to take proactive control of ones tax affairs and ensure you are protected going forward.
Jonty Leon — Attorney and Tax Practitioner.
Managing Partner at Leap Group South Africa.
Jonty@leapgroup.co.za/www.leapgroup.co.za
