A taxpayer left South Africa a long time ago to live in the United Arab Emirates but retained his permanent residency over the years. Last year some consultants sold him the idea that if he financially emigrate then he will not be taxed on his foreign income in South Africa. Is this correct?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
From the information provided we accept that the individual concern is still ordinarily resident in the RSA. The individual didn’t formally emigrate. It is our understanding that the term ‘financial emigration’ is the process whereby a South African resident changes their status with the Reserve bank to a non-resident. The RSA Reserve Bank guide refers to ‘individuals regarded as residents by the Financial Surveillance Department who are leaving South Africa to take up permanent residence in any country outside the CMA’ – paragraph 4.1. It is unlikely that it would actually be possible for your client to become a resident (or to immigrate to) of the United Arab Emirates. We suspect that you are referring to section 10(1)(o)(ii), of the Income Tax Act. It is only relevant to employment income and as long as the individual is still a resident of the RSA. It exempts amounts (remuneration) received (accrued) in respect of services rendered outside the RSA by that employee for or on behalf of any employer, if that employee was outside the RSA for the required number of days – the 60 consecutive and 183 full days. From the information provided your client may well have ceased being a resident of the RSA and became someone “… who is deemed to be exclusively a resident of another country (the UAE) for purposes of the application of any agreement entered into between the governments of the Republic (the RSA) and that other country (the UAE) for the avoidance of double taxation …” The RSA would then have no right to tax the employment income.