Tax question

[Joeemm]

Hi all

Bit of a specialised question, but how does one deal with the tax-man. Apparently as long as one is and SA citizen then your supposed to pay tax in Sa as well as where-ever you are? Can someone tell me how this is generally handled?

Thanks

[Cindylou]

Hi Joeemm

Check out the SARS websiteSARS - I've found it v informative, you can post questions about specifics if you don't feel up to wading through all the "geek speak"

In 2001 SA changed to "residence based" taxation, so you'll need to check out their definition of residence (basically involves number of days spent in SA over 3 years) go to the Income Tax Brochures > non Residents. If your financial affairs are complex I really would recommend getting professional advice.

Good luck

[DesertDaisy]

In order to not be liable for tax in South Africa you have to be out of the country for a minimum of 183 days consecutively in any tax year (March - Feb).

[Cindylou]

Hi DesertDaisy

I've copied the latest (Feb 2006) SARS definition of a resident for ease of reference, as it seems to be at odds with the "183 days", I'm not sure which is correct so here is their definition.

Defining a resident

As far as individuals are concerned two rules will apply to define what a resident is.

The first rule is based on ordinarily residence and means that a person is a resident of South Africa, if his or her permanent home, to which he or she will normally return, is in South Africa.

The second rule is time based and a more objective rule. A person will be regarded to be a resident if:

He has spent, during the current tax year as well as during each of the previous three years, more than 91 days per tax year in South Africa and

he has spent during the previous three tax years in aggregate more than 549 days in South Africa.

Note: A portion of a day is regarded as a day.

Once you are determined as a resident you are then liable for tax in SA

Cheers

[Dedrei]

The 183 days are true. If more than 183 days out of the country for more than 60 continous days, not liable for SA tax. You just need to inform SARS on your return, where they ask if you are resident and write a letter informing them since when you have been out of the country.

[Dedrei]

Please look at these interpretation notes from SARS for more clarification

Foreign employment income

http://www.sars.gov.za//it/Interpretation%...arch%202003.pdf

Residents test

http://www.sars.gov.za//it/Interpretation%...arch%202002.pdf

[Joeemm]

Hi Dedrei

Thanks very much for the info, I'll definitely look at the Interpretation notes.

Chat soon

Joseph

[Cindylou]

Cool, according to the notes you need to be out for a total of 183 full days, of which 60 must be consecutive. Unless you're a person referred to in section 9(1)(e) of the Income Tax Act... mmh more hunting to do.

[Dedrei]

Section 9(1)(e) refers to foreign dividends

Here is the extract for the income tax act:

Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

9E. Taxation of foreign dividends

[section 9E will be repealed on 1 June 2004 as instructed by the Revenue Laws Amendment Act of 2003]

1) For the purposes of this section--

‘effective date’ means 23 February 2000;

‘foreign dividend’ means

a) any dividend received by or which accrued to any person from any company which is either a foreign company as defined in section 9D, or a resident to the extent that the dividend is declared from profits derived by such company before such company became a resident; and

any amount deemed to have been distributed to that person or any resident who is a connected person in relation to that person, by any foreign company which is a controlled foreign company in relation to that person, as contemplated in section 64C(2)(a), (, ©, (d) or (g), and where the provisions contained in section 64C(4)(a), (, ©, (d), (e), (f), (i), (j), (k) or (l) do not apply, to the extent that the foreign company could have distributed a dividend to [such] that person from profits which have not been subject to tax in the Republic, which amount must be deemed to be a dividend declared by that company to that person:

‘foreign tax year’ means a foreign tax year as defined in section 9D;

‘proportionate amount of the profit’, in relation to a shareholder, means an amount which bears to the total profit, the same ratio as such shareholder’s shareholding bears to the total shareholding, and for that purpose, if there are different classes of shares –

a) the expression ‘total shareholding’ refers only to the total of the class of shares of which such shareholding is part; and

the expression ‘total profits’ means the total profits attributable to such class of shares;

‘qualifying interest’ of any person means -

a) any direct interest of at least 10 per cent held by such person in the equity share capital of any company; and

any direct interest of at least 10 per cent held by any company contemplated in paragraph (a) in the equity share capital of any other company, which other company shall for the purposes of this definition be deemed to be a company contemplated in paragraph (a) in which such person holds a direct interest of at least 10 per cent;

‘qualifying statutory rate’ means a statutory rate of tax on companies in the relevant country of at least –

a) 27 per cent in the case of amounts other than capital gains; and

13,5 per cent in the case of capital gains, after taking into account the application of any agreement for the avoidance of double taxation, if applicable, and in respect of which there is no right of recovery by any person (other than a right of recovery in terms of an entitlement to carry back losses arising during any year of assessment to any year of assessment prior to such year of assessment): Provided that where that country imposes a tax on companies at a progressive scale of statutory rates, the statutory rate shall for the purposes of this definition be deemed to be the highest rate on that scale.

2) Deleted by section 11 of Act 59 of 2000.

3) Subject to subsection (7), where during any year of assessment any foreign dividend is received by or accrues to any resident, the amount to be included in the gross income of that resident for that year of assessment in terms of paragraph (k) of the definition of ‘gross income’ in section 1,

a) where that resident (together with any connected person in relation to that resident) holds for its own benefit -

at least 10 per cent of the equity share capital in the company declaring the dividend, be the proportionate amount of the profit from which the dividend is distributed, before taking into account any foreign tax on income imposed in respect of that profit and any withholding tax paid in respect of that dividend: Provided that—

i) the foreign dividend shall be deemed to have been distributed by the foreign company from the profits of that foreign company determined in respect of the most recent foreign tax year on a last in first out basis to the extent they are available for distribution, unless the directors or shareholders by resolution decided to distribute the dividend from profits derived in a different foreign tax year; and

ii) where that foreign company during the relevant foreign tax year contemplated in subparagraph (i), derived its profits from different forms of income, the dividend shall be deemed to have been declared on a proportionate basis from the profits derived from such different forms of income; or

in any other case be the amount of that dividend declared before taking into account the amount of any withholding tax paid in respect of that dividend.

4) In determining the proportionate amount of the profit to be included in the gross income of any resident in terms of subsection (3)(a), there shall be taken into account any profits derived by any other company in which the company distributing the dividend has an interest and which have been distributed to [such] that company in the form of dividends, if the resident has a qualifying interest in [such] that other company: Provided that—

a) the dividend shall be deemed to have been distributed by that other company to that company from the profits determined in respect of the most recent foreign tax year on a last in first out basis to the extent they are available for distribution, unless the directors or shareholders by resolution decided to distribute the dividend from profits derived in a different foreign tax year; and

where that other company during the relevant foreign tax year contemplated in paragraph (a) derived its profits from different forms of income, the dividend shall be deemed to have been declared on a proportionate basis from the profits derived from such different forms of income.

5) For the purposes of subsection (3)(, where –

a) any dividend is declared by a company to any portfolio of a collective investment scheme referred to in paragraph (e)(i) of the definition of ‘company’ in section 1; and

such dividend is distributed by such portfolio by way of a dividend, or a portion of a dividend, to persons who have become entitled to such dividend by virtue of their being holders of participatory interests in such portfolio, such dividend contemplated in paragraph (a) shall, to the extent that such dividend is declared to such holders of participatory interests as contemplated in paragraph (, be deemed to have been declared by such company directly to such holders of participatory interests.

5A) Notwithstanding the provisions of sections 11(a) and 23(g) –

a) there shall be allowed to be deducted from any income of a resident which is derived during any year of assessment from taxable foreign dividends, an amount of any interest actually incurred by such resident in the production of income in the form of foreign dividends:

Provided that such deduction shall be limited to the amount of foreign dividends included in the income of such resident during such year; and

any amount whereby that interest contemplated in paragraph (a) exceeds the amount of any such foreign dividends, shall be reduced by the amount of any foreign dividends received by or accrued to such resident during such year of assessment which are not included in the taxable income of such resident, and the balance shall –

i) be carried forward to the immediately succeeding year of assessment; and

ii) be deemed to be an amount of interest actually incurred be such resident during such succeeding year of assessment in the production of income in the form of foreign dividends.

6) Any resident who receives a foreign dividend or to whom a foreign dividend accrues may, notwithstanding the provisions of subsection (3), in respect of any year of assessment elect that the amount of that foreign dividend to be included in the gross income of that resident shall –

a) in the case of a resident contemplated in subsection (3)(a) be the amount of the profits from which such dividend is declared after taking into account any foreign tax on income imposed in respect of those profits and any withholding tax paid in respect of that dividend; or

in the case of a resident contemplated in subsection (3)(, be the amount of that dividend after taking into account any withholding tax paid in respect of that dividend, and that election shall apply in respect of all foreign dividends received by or accrued to that resident during the year of assessment in respect of which the election was made.

7)

a) Deleted by section 11 of Act 59 of 2000.

Deleted by section 11 of Act 59 of 2000.

c) any listed company, contemplated in paragraph (a) of the definition of ‘listed company’ in section 1, to a resident who, together with any connected person in relation to that resident, holds less than 10 per cent of the equity share capital of that company, if more than 10 per cent of the equity share capital in that company is at the time of the declaration of that dividend held collectively by residents: Provided that where the shares of that company were not listed on such a stock exchange on the effective date, the exemption shall apply only upon approval by the Commissioner, which approval the Commissioner may grant on application by that company, having regard to—

i) the fact whether or not the profits of that company were generated in a designated country; and

ii) the tax rate at which the profits from which the dividend was declared was or will be taxed;

d) any company, which is distributed directly or indirectly to a resident who holds a qualifying interest in that company, to the extent that the profits from which the dividend is declared are or will be subject to tax in a designated country at a qualifying statutory rate

e) any company to the extent that the profits from which the dividend is distributed –

i) relate to any amount of income which has been or will be included in the income of the shareholder of such company in terms of section 9D;

ii) have been or will be subject to tax in the Republic in terms of this Act, unless those profits have been or will be exempt or taxed at a reduced rate in the Republic, as a result of the application of any agreement for the avoidance of double taxation;

iii) have otherwise been included in the taxable income of the shareholder in terms of the definition of ‘foreign dividend’; or

iv) arose directly or indirectly from any dividends declared by any company which is a resident;

f) any company out of profits derived by that company by way of –

i) any foreign dividend which is exempt from tax in terms of the provisions of this subsection; or

ii) any dividend which would have constituted a foreign dividend which is exempt from tax, had that dividend been declared on or after the effective date; or

g) any unbundling company of any distributable shares pursuant to any unbundling transaction contemplated in section 46.

8) The Minister may, by notice in the Gazette –

a) designate countries which –

i) have a tax on income that is determined on a basis which is substantially the same as that of the Republic;

ii) have a qualifying statutory rate of tax on income of companies and

iii) comply with any other requirement which the Minister may prescribe by regulation:

exclude specific forms of income which are derived from those countries contemplated in paragraph (a).

8A) The Minister may, by notice in the Gazette to such extent as he may deem necessary in the national interest and subject to such conditions as he may prescribe, grant exemption from the application of this section in respect of any dividend received by or accrued to a resident, which is remitted to the Republic, to the extent that such dividend is declared from profits derived from any project approved by the Minister, having regard to –

a) the economic benefits of such project for the Republic;

the extent to which goods and services will be provided in respect of such project from the Republic;

c) the potential effect such project may have on the South African tax base;

d) other assistance granted by the State or organ of State in respect of such project; and

e) such other criteria which the Minister may prescribe by notice in the Gazette.

8B) The Minister may withdraw any exemption granted in terms of subsection (8A), where he is satisfied that any condition imposed in terms of that subsection has not been complied with.

9) Deleted by the Revebue Laws Amendement Act, 74 of 2002

10) Deleted by the Revebue Laws Amendement Act, 74 of 2002

what happened with the smileys?

Replace cool smileys with b )

Sorry for that don't know how that happened?

[Joeemm]

Cheez !

Recon I'll just write the letter and let SARS get back to me :-)

But thanks for all the hard work wow, Really saved me a lot of time

Joseph

[DesertDaisy]

I can recommend a tax guru based in Johannesburg who can help you sort everything out. Apparently you may need a tax clearance certificate at the airport when you leave? He would be able to sort everything out for you. Just let me know.

[Van]

Well, let me tell you, it's not as simple as it seems. We got a tax clearance certificate before leaving SA & made it very clear we were LEAVING the country FOREVER. Two years down the track SARS located us and demanded tax returns for the previous two years. They've kindly calculated for us exactly how much money we've "earned" in SA and what kind of tax we now owe them on this imaginary income. We point to our tax clearance certificate, no joy, we advise we've been out of the country for two years and are Australian citizens, no joy. We are still fighting the battle after three years because they just don't get it - we are gone, we are Aussies, we are not earning money in SA, nor do we reside there or want to reside there.

Our friend advised us to get an accountant in SA to lodge yearly tax returns showing no RSA income on our behalf - he's been doing it for years. I ask why should I pay someone to fill in bogus tax returns just because SARS are confused?

We are still waiting for an answer as to what SARS think they can tax us on. So recently they sent us a sinister letter;

"We know about your property in SA, what are you going to do with it?"

Nothing actually since my in-laws live in the house and we don't change them rent or anything. And what's it to you if we own property in SA that's paid up and none of your business? We pay our rates and taxes, we pay our insurance, the house belongs to us, fair and square. Where do they get the cheek?

Edited March 15, 2006 by Van

[Joeemm]

Hi Daisy

Sorry I've taken so long to reply, I've been away doing the Argus Cycle tour :-)

I'd appreciate it if you could send me the details of the tax guru,

If you prefer you can send the details privately as well

Thanks

I can recommend a tax guru based in Johannesburg who can help you sort everything out. Apparently you may need a tax clearance certificate at the airport when you leave? He would be able to sort everything out for you. Just let me know.

[DesertDaisy]

Hi Daisy

Sorry I've taken so long to reply, I've been away doing the Argus Cycle tour :-)

I'd appreciate it if you could send me the details of the tax guru,

If you prefer you can send the details privately as well

Thanks

Sorry about this - I have had visitors here in the UAE, and its meant I've spent hardly anytime on the computer (I am normally an internet addict). He is my brother in law, and his company is 10 years old, so has plenty of experience. He focuses on small businesses and individual taxation. The details are as follows:

Kenneth Badenhorst

Symbol Financial Services CC

Accountants & Tax Consultants

103 Malcolm Road, Poortview, Roodepoort

P.O.Box 1450, Ruimsig, 1732

Email: sfs[at]netactive.co.za

kenneth[at]symbol.co.za

Tel: 011 958 0785/6

Fax .: 011 958 0686

Cell: 083 294 0955

[Joeemm]

Hi DesertDaisy

No wurries mate,

Thanks for the info.

[Cindylou]

Just had to add a quick update - the latest interpretation notes regarding the period in which you need to be out of the country in order to be taxed as non-res Resident: Definition in relation to a natural person - physical presence test and Resident: Definition in relation to a natural person – ordinarily resident

It would appear that the website still had out of date information and this is why the numbers conflicted. Happy reading