Tax Planning for Repatriation: A Non-Resident's Toolkit to Returning Home
With the euphoria of living abroad wearing off for many South Africans, a growing number of expatriates are drawn back by the allure of a vibrant cultural scene, inviting temperate climate, and favorable exchange rates.
Delano Abdoll
Legal Manager: Cross-Border Taxation
Khutso Makgoka
Legal Consultant: Expatriate Tax
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However, the return journey poses challenges for those who’ve formalised their emigration from South Africa, those uncertain about their tax residency status, and more so, those who are non-complaint under the South African Revenue Service’s (SARS) purview.
Recommencing tax residency requires a clear understanding of your worldwide asset portfolio and the importance which strategic planning offers as part of your toolkit. A good starting point is your tax and exchange control status.
Tax and Exchange Control status
South Africa’s tax system operates on a residency basis which allows SARS a taxing right over an individual’s worldwide income and assets. Through this tax system, an individual’s residency status is determined by two tests, ordinarily resident and physical presence.
The first test looks at an individual’s intention and whether one considers South Africa their ordinary residence or the place where one would reasonably be expected to return from their wanderings. The second test records an individual’s days spent within South Africa, looking at a period of 6 tax years cumulatively.
When appreciating the complexities of each test, individuals who have emigrated from and plan on returning to South Africa, have the unique opportunity of planning the reversal of their non-tax residency status with SARS. The clear benefit of doing so, is timing the reintroduction of their foreign sourced income and assets into the South African tax net.
However, this can also be a severe stumbling block for those making their way back home
Foreign Income
For those escaping the harsh European winters to enjoy their breaks pursuing outdoor leisure and working remotely brings with it the complexity of determining the source of their income.
The location where services are rendered will generally determine whether they are considered to be from a South African source or are otherwise foreign-sourced.
The most vital takeaway from this should be (at least with reference to income from services rendered under an employment relationship) that the location where one physically performs the services will be the location of the source of the income – it is not where the client or employer is based, it is not the location from which a payment is made, nor is it the location / country that the amount is paid to.
For those considering working remotely in South Africa upon their return, it is critical to understand the landscape and possible remedies under a double tax agreement, where applicable.
Wealth planning
With the promise of leveraging foreign-earned currency to one’s advantage, expatriates must understand the implications of recommencing tax residency. When one regains tax residency, their worldwide assets are reintroduced into the South African tax net and as result, income and capital from these assets may become taxable in South Africa.
Strategize your return
For individuals contemplating a return to South Africa, a comprehensive understanding of the intricacies of recommencing tax residency is paramount.
From understanding your tax status to meticulously planning your affairs ahead of your return with clear structuring of one’s asset portfolio, every step is critical.
Strategic planning and professional guidance play a pivotal role in mitigating potential challenges and ensuring a successful return to tax compliance and peace of mind.