Residence

Types of taxable compensation

Tax-exempt income

Expatriate concessions

Salary earned from working abroad

Taxation of investment income and capital gains

Tax returns and compliance

Relief for foreign taxes

General tax credits

Sample tax calculation

All income tax information is summarized by KPMG Services (PTY) Limited, the South Africa member firm of KPMG International, based on the Income Tax Act, No 58 of 1962 (as amended).

Broadly speaking, tax residence can be established through either physical presence or through being considered ordinarily resident in South Africa.

In terms of the physical presence test, where an individual is not ordinarily resident, he/she will be considered to be resident in South Africa if he/she is physically present in the Republic for a period exceeding 91 days during the current year of assessment as well as during each of the five preceding years of assessment, and he/she was physically present in the Republic for a period exceeding 915 days (or part-days) in aggregate during those preceding five years. Where a person who became resident by virtue of physical presence in South Africa, is outside the Republic for a continuous period of 330 full days after ceasing to be physically present in the Republic, that person will be deemed not to have been resident from the day he/she ceased to be physically present in the Republic.

The concept of ordinarily resident is not defined in the Income Tax Act, No. 58 of 1962, as amended (the Act), and is widely held (from case law) to be the country which an individual considers to be his/her real home. i.e. the place where his permanent place of abode is, where his belongings are stored, which he leaves for temporary absences and to which he regularly returns after such absences. If the taxpayer is habitually and normally resident here, apart from temporary or occasional absences of long or short duration or if he/she decides to settle permanently in South Africa, South Africa is recognized as being his/her real home and the individual will become a resident by virtue of ordinarily residence immediately.

Generally speaking, most types of remuneration and benefits received by an employee for services rendered in South Africa constitute taxable income regardless of where paid; subject to certain exceptions.

Typical items of an expatriate compensation package set out below are fully taxable unless otherwise indicated.

In most cases where the South African taxes are, by reason of tax equalization, the employer’s responsibility, the compensation should be grossed-up for the tax liability. This gross-up must account for the full tax-on-tax effect of the employer paying the taxes.

Where the employer reimburses taxes paid by the employee, these taxes are treated as a taxable benefit.

All home leave flights are taxable. This does not apply to relocation flights or flights provided for travel in conjunction with business travel.

Cost-of-living allowances are fully taxable in South Africa.

For purposes of determining the value of the taxable benefit relating to employer-provided accommodation, no rental value is placed on any accommodation provided by an employer to an employee while he/she is away from his/her usual place of residence outside of South Africa, provided:

• the employee was physically present in South Africa:
  • for a period of less than 90 days during that tax year; or
  • for a period not exceeding two years from his/her date of arrival for purposes of performing his/her employment duties.

The concession above is limited to ZAR 25,000 per month during which the accommodation was provided during the tax year, for up to 2 years. This provision will only apply if that employee was not present in South Africa for a period exceeding 90 days during the tax year immediately preceding the date of arrival in South Africa.

If the aforementioned conditions are not satisfied the accommodation provided to an employee by his/her employer is fully taxable in South Africa. The value of the taxable benefit will be, where the accommodation is obtained by the employer in terms of an arm’s length rental agreement, the lower of the actual cost incurred by the company, less any consideration paid by the employee, or the result of a remuneration based formula. The application of the formula or the rental value is dependent on various factors and should be evaluated on a case-by-case basis.

Where the accommodation is owned by the employer, the remuneration based formula must be used to determine the rental value.

The legislation does not provide for an apportionment where employees share accommodation. However, the Commissioner for SARS has discretion to reduce the rental of accommodation if, by reason of the situation, nature or condition of the accommodation or any other factor, the value determined in accordance with the legislation is not fair and reasonable

Benefits-in-kind generally form part of taxable compensation.

Right of use of a company vehicle:

The monthly taxable value determined value (the cash cost including VAT) per month of each vehicle, where the vehicle is

• subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3,25% of the determined value; or
• acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.

80% of the taxable benefit will be subject to PAYE on a monthly basis. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

The taxable value may be reduced on assessment of the employee’s income tax return in accordance with the ratio of business kilometres travelled to total kilometres travelled.

Further relief is available for the cost of licence , insurance, maintenance and fuel for private travel if the full cost thereof has been borne by the employee and the number of private kilometres travelled is substantiated by a log book.

Employer contributions to Medical Aid

Employer contributions to an approved South African medical aid fund, or to any fund which is registered under any similar provision contained in the laws of any other country where the medical scheme is registered, will be taxable. Employer contributions to a foreign medical scheme, which are not paid to a fund as described above, will be regarded as a taxable benefit where the employee acquires the right to have those contributions made by his/her employer in terms of his/her contractual arrangements. If the employee is a non-resident for South African tax purposes, these contributions will be taxable in South Africa to the extent that they are regarded as South African sourced income. Furthermore, any employee contributions, which the employer takes over, will be taxable.

With effect from the 2018 South African tax year, taxpayers under the age of 65 years may deduct from their tax liability a tax credit of ZAR 303 per month for the first two beneficiaries and ZAR 204 per month for each additional beneficiary, in respect of medical aid contributions made by themselves or their employer to an approved South African medical aid fund or any fund which is registered under any similar provision contained in the laws of any other country where such medical scheme is registered.

Reimbursement of costs to relocate an employee and his/her family to South Africa at the beginning and end of a South African assignment are not taxable in most circumstances.

From 1 March 2016, relocation allowances are no longer tax exempt. In order for an exemption to apply, the employees will need to provide proof of actual relocation expenditure.

There are no special tax concessions for expatriates. However, assuming the foreign national is not a South African tax resident, non-South African-sourced employment income, investment income and capital gains (excluding gains derived from the disposal of immovable property held in South Africa) will not be subject to tax.

To the extent that a non-resident individual renders services outside of South Africa, the remuneration attributable to the time worked abroad would not be taxable in South Africa, as it would not be sourced in South Africa. This apportionment will usually be done on the basis of days spent working inside and outside South Africa. It is however our recommendation that the requirement for the individual to render services abroad be detailed in a contract of employment – if subject to Audit, SARS will ask for the contract and expect to see this specifically stated in the contract.

With regards to resident individuals, foreign sourced employment income can be exempted subject to certain conditions, namely that services were rendered abroad for more than 183 full days in any 12 month period, including more than 60 continuous full days.

Non-residents are taxable on South African-sourced investment income and on capital gains derived in respect of immovable property held in South Africa. South African residents are generally fully taxable on worldwide income and capital gains.

With respect to rental income, deductions are allowed for interest, rates, taxes, and other related expenses.

In broad terms, taxable capital gains are computed by taking the disposal or deemed disposal proceeds and deducting the base cost of the asset. Forty percent of the gain will be included in taxable income and taxed at the individual’s marginal tax rate (i.e. a top income tax rate of 45% would result in an effective rate of CGT of 18%). An annual exclusion of ZAR 40,000 per year is available.

The deadlines for submission of individual income tax returns for the 2018 tax year are as follows:

• Electronic submission deadline for non-provisional taxpayers: end of October 2018
• Electronic submission deadline for provisional taxpayers: end of January 2019.
  

SARS will assess the return and notify the taxpayer of any taxes outstanding or refund due. Tax is due by the date specified on the assessment, typically 30 days from the date on which the assessment is issued, for non-provisional taxpayers. Provisional taxpayers with assessed tax liabilities will be subject to interest and potential penalties.

Late submission of an income tax return will attract an administrative non-compliance penalty.

Foreign tax credit relief for South African tax residents is typically granted in terms of domestic provisions (section 6quat). Alternatively, relief can be granted in terms of a Double Taxation Agreement (DTA).

As mentioned above, with effect from the 2018 South African tax year, a taxpayer may deduct from his/her tax liability a tax credit of ZAR 303 per month for the first two beneficiaries and R 204 for each additional beneficiary, in respect of medical aid contributions to qualifying medical aid schemes.

This calculation assumes a married taxpayer non-resident in South Africa with two children whose three-year assignment begins 1 March 2015 and ends 28 February 2018. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

Exchange rate used for calculation: USD1.00 = ZAR16.00

• All earned income is attributable to local sources.
• Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
• The company car is used for business and private purposes and the “determined value” for tax purposes is USD 50,000 (including VAT). The company car has a maintenance plan.
• Assumes that the assignee does not maintain a logbook and mainly undertakes private travel using the company provided vehicle.
  
• The employee is non-resident throughout the assignment.
• Tax treaties and totalization agreements are ignored for the purpose of this calculation (no Totalization Agreements with South Africa exist in any case).

Calculation of taxable income

There is a requirement for provisional taxpayers to declare all assets in their annual tax returns – both local and foreign. There is no separate foreign financial asset reporting requirement.