Welcome to South Africa, expat taxes and cultural diversity, including breathtaking landscapes, a bounty of adventure activities and a climate well-suited to enjoy the 3000km coastline! You’re probably not thinking about expat taxes while you’re basking in the joy of this wonderful country, but we are here to outline the most important things you need to know about filing taxes as an expat in South Africa!
Taxes: South Africa
All first-time tax payers, which refers to any new employee earning an income, irrespective of their salary, need to register with the South African Revenue Service (SARS) for taxes. South Africa may also be different from your home country when it comes to other regulations and filings. Let’s learn more!
Residency in South Africa
A person is a “tax resident” if he is either ordinarily resident in South Africa, or meets the physical presence test. Ordinarily resident means that South Africa is home; where you would naturally return to after travels. By physical presence, you must be present in South Africa for 91 days in the present year and an average of 183 days per year for the preceding 5 years (total of 915 days in the previous 5 years). South African tax residents are taxed on their worldwide income.
The South African tax year is March 1 to Feb 28. Everyone who is working must complete a tax return unless their total pay, including bonuses, is less than R83,100 a year and:
- Their total remuneration is from a single employer
- Remuneration is for a full year (based on the tax assessment year)
- No allowances were paid, from which PAYE was not deducted in full, with regards to travel allowance
The final income tax payable is calculated based on the total income for that assessment year, which is normally calculated at the end of the year assessment. Tax returns are sent out annually to registered tax payers and must be completed and returned to SARS.
Social Security Exemption and US – South Africa Tax Treaty
Any money received by South African residents from Social Security from another country is exempt from tax because there is a US – South Africa tax treaty, to prevent double taxation (totalization agreement). If you choose to contribute to the Unemployment Insurance Fund, both you and your employer pay 1% each.
An individual is declared “undesirable” when he or she overstays the validity of a current permit and leaves South Africa. Once you are declared undesirable, you are banned from entering the country for the specified period of time:
- An individual who overstays for the first time for a period not exceeding 30 days is declared undesirable for a period of 12 months
- An individual who overstays for the second time within a period of 24 months is declared undesirable for a period of two years
- An individual who overstays for more than 30 days is declared undesirable for a period of 5 years.
Filing a US Tax Return
If you are a US citizen or resident, you will still be required to file US taxes each year. If you have assets in foreign bank accounts, you may be required to report those as well. Specifically, anyone with $10,000 or more in a foreign bank or financial institution during a calendar year will be required to file the FBAR (Foreign Bank Account Report).
Fortunately, there are a few ways you can lower or eliminate your US tax obligations.
The first is the Foreign Earned Income Exclusion, which allows you to exclude a certain amount from your foreign earned income on your US expat taxes. In 2021 you can exclude up to $108,700 of foreign income from US taxation. You simply need to pass one of the two residency tests to qualify : The Physical Presence test or the Bona Fide Residence test.
The second is the Foreign Tax Credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar. This is a great option for expats who don’t qualify for the Foreign Earned Income Exclusion or those who are high-earners paying South Africa’s top tax rate. This can also be used in conjunction with the Foreign Earned Income Exclusion, but you can’t use it to offset taxes paid on the excluded income. This is double-dipping in the eyes of the IRS!
And third is the Foreign Housing Exclusion, which allows an additional exclusion from income on US expat taxes for certain amounts paid for higher household expenses that occur as a consequence of living abroad.
Need more advice on filing a US tax return as a US Expat?
Simply click here to contact us and one of our expert accountants will be able to answer your personal South Africa expat tax question!