We have seen particular discord in relation to the relief provided under a Double Taxation Agreement (DTA), specifically where taxpayers wish to avail themselves to the relief under the residency article of the DTA. The below points aim to clarify the most prevalent misconceptions in these cases.
Where you previously qualified for relief under a DTA, it is important to confirm that you are still satisfying the requirements of the relevant DTA every year. For as long as you remain a tax resident of South Africa you must file tax returns every year, and as long as you file tax returns you must also submit a tax residency certificate to benefit from the relief under that DTA.
The fact that there is a DTA in place between South Africa and the country you find yourself in, does not mean you automatically trigger relief under that DTA. There are qualifying criteria that must first be assessed in what is the so called tie-breaker test. This test will guide you in ascertaining which of the two countries has the right to tax your earnings. The test considers whether you have a home of some kind of permanency in the country, where your “centre of vital interest” lie (such as your spouse, family and economic interests etc) and whether you have triggered tax residency in the host country. Once these factors can be proven to exist in your host country, you can then make an application to SARS to cease your tax residency in South Africa under a DTA.
The commencement of tax residency would be in accordance with the relevant laws set out in the host country, these laws vary from test such as, the number of days being physically present, to being liable for tax by way of investment, domicile or residence. The practical manner in which tax residency is evidenced to SARS for purposes of the DTA, is to obtain a Certificate of Tax Residence issued by the host country’s tax authority.
If you wish to cease your residency by means of a DTA, you will need a Certificate of Tax Residence from the host country’s tax authority or a letter from the authority that indicates your status as a tax resident therein.
Where the tie-breaker test determines your factual circumstances and objective evidence to be in favour of the host country, the host country will have the exclusive right to tax your foreign income if non-residency has been claimed with SARS.
This is a very dangerous misinterpretation of the relief provided for under a DTA. You must always pay tax on South African sourced income, whether rental income or returns on a South African investment. DTAs only provide tax relief for South African expats on foreign sourced income and assets. Irrespective of being a non-tax resident, an individual will always be liable to pay tax on where income is sourced within South Africa.
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