There have been several articles recently on increasing numbers of South Africans returning to the country from abroad. For those doing so, there are several important considerations to keep in mind from a tax perspective. Understanding the tax obligations and potential benefits can help individuals manage their finances more effectively.
What many don’t realise is that without considering the above tax obligations, you might be liable for a hefty tax bill. However, this can easily be avoided with the correct advice and careful planning. In this article we explore some of these issues, but we would always recommend booking a call with one of our experts before returning. We are confident we can find ways to save you money through this journey.
One of the primary considerations upon returning to South Africa is determining one’s residency status for tax purposes. This is particularly important to understand what income will be taxed in which country and from which date. If badly planned, income may be taxed in both countries and relief for double tax may be limited. In some circumstances it might even be worth delaying your return or going on an extended holiday to avoid having to pay substantial tax. South African tax residents are subject to tax on their worldwide income, which includes income earned both domestically and abroad. This means that South African tax resident individuals returning to South Africa must declare and pay tax on income earned from foreign sources.
To avoid double taxation on income earned abroad, South Africa has entered into double taxation agreements (DTAs) with various countries. These agreements ensure that individuals are not taxed twice on the same income, providing relief through mechanisms like tax credits, exemptions, or reduced tax rates. Individuals returning from countries with DTAs should familiarise themselves with the specific provisions to optimize their tax position. However, these agreements are often difficult to interpret and often result in you paying the higher marginal tax rate in both countries without real relief.
Returning residents may also have accumulated assets and investments abroad during their time overseas. It is important to understand South Africa’s exchange control regulations, which govern the movement of funds and assets across borders. Individuals must comply with reporting requirements and may need to obtain clearance from the South African Reserve Bank for certain transactions involving foreign assets. We often find people confusing the tax and SARB requirements – these are two different bodies and both processes need to be considered.
For individuals who emigrated from South Africa and are now returning, there are specific tax implications concerning retirement funds. Emigrants may have withdrawn their retirement savings upon departure, triggering tax consequences. Upon returning, they may need to consider the tax treatment of these withdrawals and any subsequent contributions to retirement funds in South Africa.
Navigating the complexities of South African tax laws requires careful planning and compliance. Seeking professional advice from tax consultants or financial advisors can help individuals understand their tax obligations, optimise their tax position, and ensure compliance with regulatory requirements. Proper tax planning can minimize tax liabilities while maximising available benefits and relief mechanisms.
But beware. We can only plan and help you before you do something. So please plan ahead.
Click here to book a FREE 15-minute introductory call so we can help you.
Written by Erin Snyman, Head of Global Tax