[FAQ] Is a South African resident who lives in the UK liable to submit an income tax return?

[FAQ] Is a South African resident who lives in the UK liable to submit an income tax return?

• 30 June 2020
• Piet Nel

Background

A South African taxpayer has lived in the UK for several years now. He received a directive from SARS for relief from Income Tax in South Africa since mid 2018 on his South African pension as he does not spend sufficient days in South Africa to be tax resident and pays tax on his income in the UK.

Question

Will he be liable for the expat tax if he doesn't officially break tax residence with SARS? Once he has broken residence tax resident, if he has no other SA income, does he still need to submit an Income Tax return in South Africa?   

Answer

Article 17, of the RSA / UK treaty, deals with other pensions and reads as follows:

“Subject to the provisions of paragraph 2 of Article 18 of this Convention:

(a) pensions and other similar remuneration paid in consideration of past employment, and

(b) any annuity paid,

to an individual who is a resident of a Contracting State shall be taxable only in that State.”

It appears that the individual is still ordinarily resident in the RSA. The number of days physically present in the RSA is irrelevant. What is relevant is where a permanent home is available to the individual, or if a permanent home is available to the individual in both States, where the individual’s personal and economic relations are closer (centre of vital interests).

Article 17, therefore gives a sole taxing right to the country where the person is a resident. It is important to determine whether the person was (or is) deemed to be exclusively a resident of the RSA in terms of the DTA between the RSA and the UK. You indicated that the person has “has lived in the UK for several years now”. It was indicated that SARS directed to no employees tax being withheld from the pension, with a source in the RSA. We accept that it is because the individual became someone who is exclusively deemed (under paragraph 2 of Article 4) to be a resident of the UK from ‘mid 2018’ and that SARS was informed of this in the return of income submitted in respect of the 2019 year of assessment.

We accept that the reference to “expat tax” is a reference to the amendment to section 10(1)(o)(ii) of the RSA Income Tax Act which became effective on 1 March 2020. It is not available in respect of a pension, but applies in respect of remuneration that accrues in respect of services rendered outside the RSA by an employee for or on behalf of any employer.

Returns of income, in the RSA, would then only have been required to be submitted if it was so required in the notice to submit returns in each of the years of assessments since then.

Paragraph 2 of the 2019 notice, for example, reads as follows:

The following persons must submit an income tax return:

(e) Every natural person who─

(ii) is not a resident and carried on any trade (other than solely in his or her capacity as an employee) in the Republic;

(f) Every natural person who—

(ii) is not a resident and had capital gains or capital losses from the disposal of an asset to which the Eighth Schedule to the Income Tax Act applies;

(h) Every non-resident whose gross income included interest from a source in the Republic to which the provisions of section 10(1)(h) of the Income Tax Act do not apply;

Webinar Commentary

Further webinar commentary on Tax residence can be accessed here and webinar commentary on Financial emigration vs tax emigration can also be accessed here.

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