Tax Guide for US Expats Living and Working in South Africa
Who Is Liable For Income Taxes in South Africa
Individuals resident in South Africa are subject to tax on their worldwide income. Nonresidents are subject to tax on income from a South African source or from a source deemed to be South African.
The place where the services are rendered is generally the source of remuneration. However, short-term visits of fewer than three weeks do not generally result in South African tax liability if the individual’s presence in South Africa is incidental to employment elsewhere.
An individual is regarded as a resident for tax purposes under either the ordinarily resident rule or the physical presence rule. Under the ordinarily resident rule, an individual is regarded as ordinarily resident in South Africa if South Africa is the place, considering all personal and financial circumstances, to which the individual would naturally return from his or her travels, and that is the individual’s real home.
The physical presence rule applies if the individual is not ordinarily resident at any time during a particular year, but is physically present for more than 91 days in the relevant year and is physically present for an aggregate of more than 915 days in the preceding 5 years and for a de minimis period of more than 91 days in each of those preceding years. For purposes of determining the 91-day and 915-day periods, a partial day counts as a full day. If an individual is physically outside South Africa for a continuous period of at least 330 full days after the day of last physical presence, under the physical presence rule that person is not resident for the entire period of continuous absence.
A person cannot be treated as a South African resident for tax purposes if he or she is considered to be a resident for tax purposes of another country under the “tiebreaker” rules of a double tax treaty.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. The basis of employee taxation is remuneration, which consists of salary, leave pay, allowances, wages, overtime pay, bonuses, gratuities, pensions, superannuation allowances, retirement allowances and stipends, whether in cash or otherwise. These payments form part of the gross income of an employee, together with the cash value of any fringe benefits received. Fringe benefits are taxed in accordance with a schedule of valuations.
Remuneration from employment on extended absences outside South Africa is exempt from tax if the employee is outside South Africa for an aggregate of more than 183 full days in any 12-month period beginning or ending in the tax year, and for at least one continuous period exceeding 60 full days during the same 12-month period.
For residents, any amount received or accrued under the social security system of another country or any pension received from a non-South African source (and not deemed to be from a South African source) in consideration of past employment outside South Africa, is tax-exempt. A pension is deemed to be from a South African source if the services for which the pension was granted were performed within South Africa for at least two years during the ten years immediately preceding the date on which the pension first became due.
Self-employment and business income. Professional fees paid to nonresidents are subject to employee withholding tax (if from a South African source), even if the nonresident is an independent contractor.
Investment income. Domestic dividends paid to residents by companies and close corporations are exempt from tax. Foreign dividends on holdings of less than 20% that are paid to residents are taxable subject to the provisions of an applicable double tax treaty. Foreign dividends paid on greater holdings are exempt from tax. Credit for foreign tax paid may be available.
For residents, interest and taxable foreign dividends of up to R 22,300 (R 32,000 for individuals older than 65 years of age) are exempt from tax. This exemption applies to dividends and interest from both South African and foreign sources. However, foreign-source dividends and interest are exempt only up to R 3,500 of the total allowable exempt amount.
Anti-avoidance legislation restricts spouses from splitting their investment income to reduce their tax burden.
Dividends paid to nonresidents by companies and close corporations are exempt from tax. Royalties paid to nonresidents are subject to a final 12% withholding tax.
Nonresidents are not subject to tax on their South African-source interest if they are physically absent from South Africa and if they do not carry on business in South Africa (employment is not a business for these purposes). No withholding tax is currently imposed on interest. However, effective from 1 January 2013, a withholding tax of 10% will be imposed on interest paid to non-residents that is not otherwise exempt. Effective from that date, the general exemption for nonresidents will apply only to bank interest and interest on government securities.
Interest paid to all individuals is exempt from tax up to R 22,800 (R 33,000 for individuals older than 65 years of age). Nonresidents who do not qualify for the above exemptions must file a normal tax return.
Taxation of employer-provided stock options and other incentive plans. The difference between the market value of shares and similar rights as of the date of vesting (for tax purposes) and the consideration given by the employee is taxed in South Africa if the incentive is related to services rendered in South Africa.
Residents are taxable on the whole gain, regardless of source, unless they are exempt under the extended absence rule (see Who is liable). Any subsequent gain on actual disposal is generally subject to capital gains tax (CGT). However, if the resident is classified as a share dealer, the gain is subject to income tax instead of CGT.
Nonresidents are subject to income tax on the part of the gain that relates to the period of South African service. Nonresidents are generally not subject to CGT on any subsequent gain on actual disposal. However, if a nonresident employee is classified as a share dealer, the gain is subject to income tax.
Deductions
Deductible expenses. Expenses not of a capital nature that are incurred in earning taxable income are generally deductible. Donations to public benefit organizations are deductible, up to 10% of taxable income.
The maximum deduction for current approved South African pension fund contributions is the greater of R 1,750 and 7.5% of pensionable income.
Approved retirement annuity fund contributions are deductible, up to the greatest of the following amounts:
- R 3,500, less pension fund contributions
- 15% of non-pensionable income, including income from investments, pensions and annuities
- R 1,750
Individuals may claim deductions for total contributions (his own and those of his or her employer) toward medical aid, subject to the following maximum amounts:
- R 720 per month for the individual
- A further R 720 per month for the first dependent, and an additional R 440 per month for each dependent thereafter
With the exception of taxpayers who retired from employment as a result of old age, ill health or infirmity, employer contributions toward medical aid are considered to be taxable fringe benefits.
However, an employer may be allowed a deduction of contributions made to medical aid funds subject to the limits discussed above. In addition, an individual may obtain a secondary medical aid deduction to the extent that the total of the following amounts exceeds 7.5% of taxable income:
- Employee contributions not allowed as deductions
- Medical expenses not paid by medical aid
No limit applies to persons older than 65 years of age and handicapped persons.
Personal deductions and allowances. Mortgage interest paid is not deductible for tax purposes. For the 2011–12 tax year, a primary rebate of R 10,755 is deducted from tax payable on taxable income. The amount of the rebate for individuals 65 years of age and older is R 16,767.
Individuals younger than 65 years of age who have taxable income of less than R 59,750 are not subject to tax. For individuals 65 years of age and older, the threshold is R 93,150.
Rates. All individuals are taxed at the same rates.
Relief for losses. Business losses of a self-employed person may be carried forward indefinitely if the trade is continued. No loss carrybacks are permitted.
B. Other taxes
Capital gains tax. Capital gains are taxable in South Africa. Capital gains tax (CGT) is imposed through the income tax system by including a proportion of the calculated gain in taxable income. For residents, CGT applies to capital gains derived from the disposal of worldwide tangible and intangible assets. Nonresidents are subject to CGT on capital gains derived from the disposal of real estate held directly or indirectly through a company or trust (if 80% of the value is attributable to real estate), or the assets of a permanent establishment in South Africa. A deemed capital gain arises on the loss of tax resident status.
For individuals, an R 20,000 annual exemption of capital gains or reduction in capital losses is allowed. Only 25% of capital gains (after the exemption) is taken into account for CGT purposes. Consequently, the effective CGT rate for an individual taxed at the highest marginal income tax rate of 40% is 10% (25% x 40%).
CGT applies only to increases in value occurring on or after 1 October 2001 and a formula calculation or a formal valuation is used to determine the base value at that date. Inflation indexing of base cost is not allowed. Rollover relief is available in certain circumstances, including the destruction or scrapping of assets. A gain derived from the sale of an individual’s primary residence is not subject to CGT unless the amount of the gain exceeds R 1,500,000. If the proceeds on the disposal of a primary residence are less than R 2 million, any capital gain is excluded.
Capital losses, other than those incurred on the disposal of personal-use assets (assets used primarily for purposes other than the carrying on of a trade), may offset capital gains. However, net capital losses may not be offset against regular taxable income. Excess losses may be carried forward indefinitely to offset future gains (subject to the R 20,000 annual reduction, which is discussed above).
Estate duty and donations tax. Estate duty and donations tax are levied at a flat rate of 20% on net assets at death and all capital transfers concluded for no consideration or for inadequate consideration.
Exemptions from donations tax are granted for donations of up to R 100,000 made each year during a person’s lifetime. A deceased’s estate is subject to duty only to the extent that the net value exceeds R 3,500,000 plus the value of bequests to a surviving spouse. If the deceased spouse’s estate has not fully used the R 3,500,000 exemption, the balance can be used in the estate of the surviving spouse.
Residents are subject to estate duty and donations tax on world-wide assets, except offshore assets acquired by inheritance or donation from a nonresident or owned prior to becoming resident. Nonresidents are subject to estate duty on assets located in South Africa only and are exempt from donations tax.
To prevent double taxation, South Africa has entered into estate tax treaties with the following countries.
Botswana
Swaziland
United States
Lesotho
United Kingdom
Zimbabwe
Transfer duty. Transfer duty is levied on the acquisition of fixed property with a value exceeding R 600,000. The rate of the duty on property with a value exceeding R 600,000 depends on the purchase price of the property; the maximum rate is 8% which applies to property with a value exceeding R 1,500,000. If the purchase price is less than the property’s fair value, the tax authorities may calculate the amount of transfer duty payable based on the fair value.
C. Social security
Limited unemployment insurance and accident or illness benefits are provided.
The Unemployment Insurance Fund provides benefits to unemployed people and to dependents of deceased contributors. Employers and employees each contribute to the fund at a rate of 1% of the employee’s remuneration up to the transition limit (currently at R 149,736). A person who enters South Africa for the purpose of carrying out a service contract does not fall within the scope of the fund if, on termination of the contract, the employer is required by law or by contract to repatriate the person.
Employers are required to make contributions to the Workers’ Compensation Fund to insure their employees against industrial accidents or illnesses that result in death or disability. The Commissioner for Workers’ Compensation determines the amount of the contributions after the employer reports the annual total remuneration of employees.
Contributions are payable on annual remuneration of up to R 261,893. Persons seconded from a foreign country who do not take up employment with a South African company are not required to register with the fund.
Employees. Under the Pay-As-You-Earn (PAYE) system, resident employers or representative employers for nonresident employers must deduct tax monthly from the remuneration of their employees and must pay these amounts to the Inland Revenue. If a nonresident employer does not have a place of business in South Africa or an agent who is authorized to pay wages, no PAYE liability is likely to arise. Annual tax returns must be submitted to the Commissioner of Inland Revenue within the period specified in the annual “Notice to Furnish Returns” (usually within 60 days from the date of issuance), unless the taxpayer is subject solely to Standard income Tax on Employees (SITE), which is a final withholding system for employees earning less than R 60,000. SITE is in the process of being phased out.
Provisional taxpayers. Persons deriving income, excluding exempt income, of R 20,000 or more a year from sources other than remuneration are considered provisional taxpayers and are required to make provisional tax payments each year on 31 August and in the following year on 28 February and 30 September. The second provisional tax estimate must be at least 90% of the taxpayer’s actual income for the year to avoid penalties. The third payment must bring the total amount paid to 100% of actual liability, to avoid an interest penalty. The penalty does not apply if taxable income does not exceed R 50,000. A limited exemption from filing provisional tax returns is granted to individuals over 65 years of age if their annual taxable income is R 120,000 or less and if their income consists solely of remuneration, interest, dividends or rent from the lease of fixed property.
Double tax relief and tax treaties
In the absence of treaty provisions, unilateral relief is available on foreign-source income in the form of a credit for foreign taxes paid, limited to the lesser of the actual foreign tax liability and the South African tax payable on the foreign income. South Africa has entered into double tax treaties with the following countries.
Algeria
Indonesia
Romania
Australia
Iran
Russian
Austria
Ireland
Federation
Belarus
Israel
Saudi Arabia
Belgium
Italy
Seychelles
Botswana
Japan
Sierra Leone
Brazil
Korea (South)
Singapore
Bulgaria
Kuwait
Slovak Republic
Canada
Lesotho
Spain
China
Luxembourg
Swaziland
Croatia
Malawi
Sweden
Cyprus
Malaysia
Switzerland
Czech Republic
Malta
Taiwan
Denmark
Mauritius
Tanzania
Egypt
Mozambique
Thailand
Ethiopia
Namibia
Tunisia
Finland
Netherlands
Turkey
France
New Zealand
Uganda
Germany
Nigeria
Ukraine
Ghana
Norway
United Kingdom
Greece
Oman
United States
Grenada
Pakistan
Zambia
Hungary
Poland
Zimbabwe
India
Portugal
South Africa is also negotiating tax treaties with the following countries.
Angola (a)
Lesotho (c)
Serbia
Bangladesh (a)
Lithuania (a)
Montenegro (a)
Cameroon (a)
Madagascar (a)
Singapore (c)
Chile (a)
Malawi (c)
Sri Lanka (a)
Congo (Democratic Republic of) (b)
Mauritius (c)
Sudan (b)
Mexico (a)
Switzerland (c)
Cuba (a)
Morocco (a)
Syria (a)
Estonia (a)
Namibia (c)
United Arab
Gabon (b)
Netherlands (c)
Emirates (a)
Germany (c)
Qatar (a)
Vietnam (a)
Kenya (a)
Rwanda (b)
Zambia (c)
Latvia (a)
Senegal (a)
Zimbabwe (c)
(a) This treaty is under negotiation, but it is not yet finalized.
(b) This treaty has been ratified by South Africa, but it is not yet effective.
(c) This treaty will replace an existing treaty.
To learn more about the history, culture, economy and other information about South Africa
We have been preparing US income tax returns for US Citizens and permanent residents living in South Africa for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in South Africa and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in South Africa.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email