The South African tax structure is premised on what is referred to as the residence-based system. This system requires that residents be taxed on their world-wide income, subject to exclusions, despite the source or origination of the income. However, with regards to non-residents a different system applies as they are only taxed on an income from a South African source.
Due to increased migration and competing tax rights amongst different countries, Double Taxation Agreements (DTAs) are normally signed which seek to avoid the same income being taxed twice in different countries. Some typical results of other DTA agreements are that where a non-resident earns an income in a country, that income will not be taxed, subject to requirements. It therefore becomes important to qualify who is a resident and who is not.
A person is considered to be a resident of South Africa if, as per common law, is ordinarily resident in the Republic and will return back after travels. On the other hand the Income Tax Act of 1962 presents a physical presence test to determine if a person is a resident or not for the purposes of tax. Under this test a person is a resident if he/she is in South Africa for at least 91 days in total during the tax year in question, 91 days during each year for the past 5 years of assessment preceding the year under consideration and 915 days during the 5 preceding years of assessment. It is important to note that sometimes a person may not be considered a resident under the common law, but be considered a resident under the physical presence test and therefore in that regard, will be taxed under normal procedures as a resident.
With regards to Employment Income, immigrants formally employed in South Africa, in the absence of DTAs and any other exclusion, will be taxed normally as residents should their presence in South Africa fit with the common law or physical presence test requirements.
However for tax purposes they will be regarded as non-residents if the following apply;
- Presence of a DTA providing otherwise;
- Present in South Africa for less than 183 days during any 12 month period;
- Remuneration paid by or on behalf of an employer who is not a resident of South Africa;
- The remuneration is NOT proceeds from permanent business interests such foreign employer has in South Africa.
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