Especially when you consider the fact that South African tax residents are subject to expat tax (which came into effect in March last year) on their worldwide income, with the first R1.25 million being tax exempt. This type of situation can get complicated for tax purposes. Who does a double tax agreement apply to?Ī Double Tax Agreement will become relevant to your situation where you are earning income both in South Africa and overseas, or if you are a tax resident of South Africa (without income from a South African source) and you earn an income from a foreign source. How do you do this? It’s called the measured approach and it’s applied by means of the tie-breaker test which looks at various factors, including whether you hold a tax residency certificate, where your permanent home is located and where your family and economic ties lie, to name a few. In order to correctly utilise this tax relief avenue on your foreign income, you will need to ascertain which country has the right to tax your income.
The DTA specifies the requirements that must be met in order to determine where your obligation lies as a tax resident.ĭepending on where you are considered a tax resident (taking into account the Double Tax Agreement), this will decide where you’ll be expected to pay certain types of taxes on the income you earn. This means that a Double Tax Agreement that exists between South Africa and another country provides a legal defence to double taxation. The point of a Double Tax Agreement is to ensure that if you are working abroad, you are not unfairly taxed both in South Africa and the country in which you work. How does a double tax agreement work in South Africa?
South Africa has made a number of legal agreements with various tax authorities around the world to ensure that each country that is party to the agreement is clear on what taxing rights they hold against taxpayers. This is where Double Tax Agreements (DTA) come into play to provide tax relief, so let’s take a look at how they work. Why? Because South Africa has a residency-based tax system, which means if you’re considered a resident for tax purposes, you’ll be expected to pay tax on your worldwide income back at home. If you’ve recently moved abroad for work or you’re planning to leave South Africa soon to start a new job overseas, tax is one of the important things you need to consider and plan for.
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