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South Africans living or working abroad can no longer “avoid” the long arm of SARS. (iStock)
- SARS’s ability to detect taxpayers who historically “flew under its radar” has increased, warns a tax expert.
- A new, stricter regime to determine tax residence status will be implemented as of March 1, 2021.
- South Africa’s tax residence is not determined solely by the amount of time spent in the country.
The time to hide your head in the tax arena is over for SA expats, says Jonty Leon, legal manager at Tax Consulting SA.
South Africans living or working abroad can no longer “avoid” the long arm of the SA Revenue Service. Stronger legislation to support its tax collection efforts and an emerging global financial data sharing system increases SARS’s ability to detect taxpayers who historically “flew under its radar.”
“Under pressure to meet its income quotas, SARS has begun to seriously audit expatriates who do not meet the country’s standards. We have been warning expats that this was going to happen and now that it’s here,” he says Lion.
“The safest route to remove ambiguity about tax residence status is to follow the formal financial migration process. This process is being changed and a new, more stringent regime will be implemented as of March 1, 2021.”
He advises South Africans who intend to relocate to another country to follow formal exit procedures and, most importantly, to ensure that their tax affairs are in order beforehand. It also warns that those who have already left permanently, should ensure that they have done so in a compliant manner and that they have been designated as non-residents for tax purposes.
Whether a South African is required to report their income worldwide and pay taxes to SARS is determined by their tax residence status, not their physical location or period outside the country.
“South Africa’s tax residency is not determined solely by the amount of time spent in the country. This is a much more complex issue that technically has to be dealt with in terms of the law,” explains Leon.
“This may come as a surprise to those who believe that once they set foot on foreign soil, they are free from any other tax liability to South Africa. More so for those who left the country without paying their tax debt, even if they have been gone for decades.” .
READ: Expat Tax: What You Should Know About Double Taxation, Your Tax Status, and SARS Penalties
Warning signs
Changes to the expatriate tax laws went into effect on March 1, 2020, shortly after SARS launched its dedicated Overseas Employment Unit, which focuses on South Africans working abroad.
In addition, it was announced that the current financial emigration law would be amended, which in the past had managed to confirm non-resident status before SARS and the SA Revenue Service (SARB).
“The change will inherently make cessation of tax residency more difficult and with a new replacement process and, thus far, undisclosed on the horizon, there has been a massive influx of applications to exceed the [1 March 2021] deadline, “says León.
Additionally, the term “intentionally” was removed from the Tax Administration Law in relation to the treatment of non-compliance. This gives SARS greater leverage to prosecute anyone who alleges negligence in failing to meet their tax obligations.
“This is in line with the reasoning for the change in tax legislation for expatriates previously, where widespread tax noncompliance by South Africans abroad was observed during parliamentary sessions in August 2017,” says Leon.
SARS attack strategy
SARS has begun a two-front attack strategy, according to Leon. First, the tax agency requests audits from individual expatriates, in order for them to prove that they are not residents and to justify their intentions. Some audits require proof that the taxpayer had obtained an emigration tax clearance certificate when leaving South Africa.
Second, SARS calls for audits on offshore revenues disclosed through the Common Reporting Standard (CRS). According to Leon, this is no surprise, as SARS targets those who have historically been able to “hide” assets and funds. This “concealment” of funds will no longer be possible due to the exchange of information between jurisdictions.
Options
Leon says that South African expats and those who wish to emigrate still have several options available.
On the one hand, they can urgently request financial emigration until March 2021, since the National Treasury confirmed that applications submitted before that date will be processed under current legislation.
They can also take advantage of any double taxation agreement between the chosen country and South Africa. The tax implications of such agreements vary between jurisdictions and these agreements do not automatically apply to the taxpayer.
If an expat does not comply with taxes, they can approach SARS under the Voluntary Disclosure Program to pay their back taxes along with interest and penalties, but without prosecution. Specific requirements must be met.
“SARS has the upper hand now, so waiting to see what happens is a course of action that I do not recommend,” Leon warns.
* Compiled by Carin Smith
