I’m moving to Singapore on a local permanent contract, and I’m struggling to understand how I will be taxed. Will I be taxed there in the relevant tax bracket and then be exempt from SA tax because I am there for more than 183 days per annum? Is the double taxation treaty still valid? Or is the new rule, where you get taxed in the relevant bracket in the country you work in and then get exempt for the first R1.25 million left over, and then taxed in SA for the remainder (the new law instituted in March 2020) applicable?
I am really worried because Singapore is extremely expensive and if I get taxed on both sides of the fence I will either have to emigrate financially or not accept the contract. My intention is not to emigrate, but to come back at some stage. Please advise.
These are all important points to consider and fully understand before making a final decision. From a taxation perspective, it is important to know your obligations in each jurisdiction to ensure that you do not face unintended fines, penalties or – in severe cases – potential jail time, depending on the laws of the jurisdiction.
The good news is that South Africa and Singapore have had a valid double taxation agreement in place since December 16, 2016. The double taxation agreement ensures the taxpayer is not unfairly taxed on the basis of the source of the income and where your tax residency resides. Although you will be living and working abroad, the fact that your intention is to ultimately return to South Africa means that your tax residency will remain in South Africa, and you will be liable for taxation by the South African Revenue Service (Sars).
There are, however, a few steps that you should work through to establish what and where your tax liabilities will reside.
Firstly, we have established that you will remain a South African tax resident, as your intention is to return to South Africa after what is referred to as your “wanderings” abroad. Next, as you have stated, if you meet the offshore requirements of at least 183 days outside the country collectively within a 12-month period with at least one of these trips being a continuous 60 days, you will qualify for the offshore earning exemption, being your first R1.25 million in earnings. This is your gross pre-tax earnings abroad. Earnings above this figure you will be liable to pay tax on in South Africa.
The sequence should therefore be that all your earnings are first taxed in Singapore with the initial R1.25 million equivalent being exempt in South Africa should you meet the requirements of being offshore. Your earnings above R1.25 million then become liable for tax in South Africa in accordance with the Sars PAYE tax tables.
However, the tax paid on these monies in Singapore will produce a credit against any liability payable in South Africa with only any remaining balance payable to Sars.
Regarding your comment about financial emigration, please note that this is not a straightforward process.
Financial emigration has become the colloquial term used for breaking tax residency with South Africa.
In order to achieve this, you would need to prove to Sars why you should be considered for approval. This will usually start with demonstrating that your intention is to permanently move away and break ties with South Africa. Steps such as selling your primary residence and purchasing another in your new country of residency would be a strong demonstration of intent. Keep in mind that breaking tax residency with South Africa triggers certain deemed events such as a disposal of your assets, except physical property, which creates a capital gains tax event. Depending on your financial circumstances and holdings this may be a cost you had not provided for.
Should you go through with a financial emigration and thereafter you return to South Africa within a three-year period, this would be seen as a failed emigration and Sars will reinstate and back-date your tax residency to when you broke your residency status. This would then make you liable for any tax that would have arisen in the sequence above.
I would advise you to speak with a qualified and reputable tax practitioner who has experience in assisting clients with foreign and offshore earning to guide you through the most appropriate course of action.