Tax is one of the most important features of any expatriate contract because of the interaction of various tax jurisdictions. Being a financial issue, companies are alert to ensure their employees do not become liable for tax in two jurisdictions.
For tax purposes, a person is regarded as a South African resident if he or she physically resides in the country for an unbroken period of more than 91 days in the current year, as well as in each of the past five years, as well as 915 days on aggregate during the five years. But if the person is out of the country for 330 days, then he/she ceases to be regarded as a resident.
If the person does not meet either of these criteria, he or she would not be regarded as a resident for South African tax purposes.
Liesl Kruger, tax director at corporate law firm Cliffe Dekker, says people relocating to South Africa need to know these facts when scheduling their stay. “Many corporates ensure their expatriate employees return home frequently [so that] they do not become resident for tax purposes as a result of the physical presence test,” says Kruger.
It effectively means that expatriates cannot qualify for tax within five years and therefore most employment contracts are also of five years’ duration. In fact, unless the structure of the expatriate contract takes the local country rules into account, it’s fairly easy to fail to qualify as a local taxpayer.
The second test of South African tax residency in the case of individuals is the “ordinary resident” test, which covers people who intend to make South Africa their home.
“While the first is an objective test, based entirely on the number of days, the second is subjective, looking at the individual’s state of mind and whether he/she can be said to regard South Africa as their true home. This test generally applies to residents leaving South Africa on an international assignment,” says Kruger.
She suggests that South Africans going to work abroad, even if they are uncertain about whether or not they will return, should be aware that keeping assets in South Africa may be an indication that they intend to return to this country, resulting in the revenue authorities regarding them as ordinarily resident in South Africa for tax purposes.
It is also possible that, as a result of the interaction of tax regimes, an individual may be regarded as a resident in more than one country.
“Although it’s unlikely you’d ever be taxed in two countries, one also has to look at the rules in the host country you’re moving to — and whether there’s a double taxation agreement. Other countries, especially European ones, may have different residency rules: they may look at 183 days rather than 91,” says Kruger. Even if you are taxed in a foreign country, the South African Revenue Service gives you credit for those taxes.