For South Africans living and earning abroad, it is crucial to understand how the South African Revenue Service (SARS) treats foreign income to ensure compliance and prevent unexpected tax charges. Unlike many countries that only tax income earned within their borders, South Africa follows a residence-based tax system. This means your tax obligations depend on whether you are classified as a tax resident or non-resident, and this status is not always linked to your physical location.
Tax residency: the foundation of your SARS obligations
Tax residency in South Africa is determined using two tests:
- The Ordinary Residence Test assesses where your primary/permanent “base” is, depending on your personal/family/financial interests.
- The Physical Presence Test looks at how much time you actually spend in South Africa across several tax years.
SARS will consider you a resident for tax purposes if you meet the requirements of either of these tests, and as a tax resident you are required to report and pay tax on your worldwide income i.e. including your foreign earnings. If you do not meet the criteria and are officially recognised as a non-resident, you will typically only be taxed on income earned within South Africa.
It is therefore important to understand that simply leaving South Africa does not automatically change your tax status. Ceasing tax residency requires approval from SARS, and to be recognised as a non-resident, you typically need to follow the formal tax emigration process, which includes submitting the RAV01 form and supporting documentation.
A termination of residency will then be regarded by SARS as a disposal of worldwide assets for capital gains tax purposes (excluding immovable property within South Africa). Until the entire process is finalised, you may still be liable for tax on foreign income.
Global income tax: what happens if you’re still a tax resident
If SARS considers you a resident, all your income (local and foreign) may be subject to taxation in South Africa. This includes:
- Foreign employment income
- Foreign dividends
- Foreign interest
- Foreign rental income
- Foreign royalties
While each category has specific reporting requirements and relief options, the fundamental rule is that foreign income must be declared.
Section 10(1)(o)(ii) - foreign employment income exemption
If you are employed abroad and meet certain criteria, Section 10 of the Income Tax Act allows you to exclude up to R1.25 million of your foreign employment income from South African tax annually. To be eligible, you must:
- Be a South African tax resident (i.e., not yet formally non-resident for tax purposes),
- Be employed (independent contractors don’t qualify),
- Spend more than 183 full days outside SA within any 12-month period, and
- Have at least 60 of those days continuous.
It is important to note that this only applies to R1.25 million of employment income and does not automatically exempt all your foreign income. Any income exceeding R1.25 million will be taxed normally.
Double Taxation Agreements (DTAs) and foreign tax credits
In order to avoid taxing the same income twice, once abroad and then again by SARS, South Africa has Double Taxation Agreements (DTAs) with numerous countries. If foreign tax is paid, you may be eligible for a foreign tax credit on your SA tax return, lowering your overall tax liability. These treaties also specify which country has the main right to tax particular types of income. It’s crucial to correctly apply DTAs on your tax return, as errors can result in avoidable double taxation.
Non-residents & South African-source income
Once SARS confirms your status as a non-resident, the way you are taxed changes significantly:
- SARS taxes only South African-source income (earnings from a South African employer, rental income from SA property, or certain dividends and interest).
- Foreign earnings and capital gains from offshore assets are generally no longer taxable by SARS once non-resident status is effective.
However, South African assets (property or shares) can result in ongoing SA tax obligations even after residency, and you may incur Capital Gains Tax (CGT) when ceasing residency under the deemed disposal rules (“exit tax”).
Retirement savings & tax residency
Your residency status also affects your access to South African retirement savings, including pension, provident funds, and retirement annuities. Due to recent legislative changes, SARS typically requires you to be a non-resident for at least three consecutive years before you can access these funds. The three-year period begins on the date SARS recognises your change in status from resident to non-resident.
To avoid any delays in accessing your savings, ensure all documentation is complete, including proof of departure, SARS confirmation letters, and foreign tax compliance.
Practical tips for expats
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Submit your ITR12 each year, regardless of whether or not your foreign income is taxable. This shows compliance and helps avoid penalties.
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Keep detailed records of your travel days and contracts to support any Section 10 exemptions.
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Submit the RAV01 form to officially confirm your tax residency has ended and to keep records of communication from SARS.
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Obtain professional tax advice, especially for matters involving DTAs, exit tax, and retirement withdrawals.
For South African expats, SARS taxation depends on residency status rather than physical location. Whether you are still filing as a resident or are in the process of establishing non-residency, it is crucial to understand rules related to foreign income, exemptions such as Section 10(1)(o)(ii), and the process of formal tax emigration. With careful planning, proper documentation, and compliance, you can efficiently manage your foreign income and minimise unnecessary tax liabilities, ensuring compliance with SARS.
How Future Forex can assist South African expats
Managing your foreign income and the SARS requirements that come with it can feel like an overwhelming task. Simplify the process and let our team of emigration and forex experts assist. From guiding you through SARS tax residency status applications, to applying for emigration clearance and providing access to market-beating rates, we’ll ensure your financial transition is as seamless as possible.
