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.
A common misconception that Taxpayers often mistakenly believe is that they are absolved from filing returns when they rely on Double Taxation Agreement relief. The DTA itself is not an elixir that guarantees absolution from South African taxation. DTA relief is an exemption that must be “claimed” and, unfortunately, SARS does not allow taxpayers to make this determination unchecked and unchallenged. As a resident under South African law, you are required to file your return and to claim the relevant relief, with enough evidence to back up your claim.
When Double Taxation relief applies, you are still liable to pay the difference in taxes in South Africa. The misconception seems to flow from a conflation of DTA principles and the claiming of tax credits. While this is a form of DTA relief available, it does not end here. Where DTA “tie-breaker” relief is claimed correctly, the taxpayer is no longer subject to tax in South Africa on any foreign income. This is not affected by the taxes, or lack thereof, payable in the host country.
Some individuals are of the belief that Residency certificates mean they are no longer resident in South Africa or, again, that they are automatically considered exclusively resident of the host country under the DTA. The Residency Certificate may serve as your ticket to the ball game, but that is where it stops. It is entirely possible to possess a residency certificate from your host country without qualifying for DTA relief.
The most dangerous misconception is likely that the mere existence of a DTA between South Africa and a taxpayer’s host country means they qualify automatically for DTA relief. The truth is that each taxpayer’s facts must be assessed individually to determine if the underlying requirements of a certain provision of the DTA have been satisfied. Whilst DTAs are generally uniform, the residency article tends to have subtle differences across the DTAs concluded with different contracting states, making a blanket approach even more perilous.
Where there is a DTA between the host country and South Africa, the income earned in the host country is not taxable in South Africa because the host country has the sole Taxing Right. When it comes to income earned from employment, most DTAs give the sole taxing right to the country of residence, unless the employment is exercised in a host country.
The result is that, as a South African tax resident, your income remains subject to tax in South Africa. The fact that the host country has a dual taxing right might bring relief when it comes to claiming Tax Credits in South Africa.
| Cookie | Duration | Description |
|---|---|---|
| cookielawinfo-checkbox-analytics | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics". |
| cookielawinfo-checkbox-functional | 11 months | The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". |
| cookielawinfo-checkbox-necessary | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary". |
| cookielawinfo-checkbox-others | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. |
| cookielawinfo-checkbox-performance | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance". |
| viewed_cookie_policy | 11 months | The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data. |