The appealing scenario of not paying any direct/income tax on your UAE-earned income is often the main focus of anyone looking to relocate there. This can often overshadow the fact that your living expenses are higher and that the Federal Tax Authority (FTA) charges substantial indirect tax.
The fact that the FTA does not levy income tax does not mean that you, as an SA expat, cannot trigger tax residency in the UAE.
Tax residency is triggered by an individual who, under the laws set out by the UAE, is generally considered a resident by reason of:
- Physical Presence: You must be physically present in the UAE for at least 183 days in a consecutive 12-month period;
- Permanent Home: You have a permanent place of residence in the UAE, which you use regularly, either yourself or through family members; or
- Residence Visa: You hold a valid UAE residence visa and reside in the UAE for at least six months out of the year.
As a tax resident in SA, you are legally required to submit tax returns to SARS every year and declare your worldwide earnings (local and foreign) and then claim any exemptions or tax credits on the foreign earnings.
Claim Relief Under a DTA between SA and UAE
You may claim relief under the Section 10 (1)(o)(ii) exemption, unfortunately this only provides relief for up to R1,25 million. For those wanting to protect income that exceeds this amount, may consider protecting their full hard-earned foreign sourced income by way of ceasing tax residency, under either the Double Tax Agreement (“DTA”) or the so-called Financial Emigration process.
Delving into ceasing tax residency by way of the DTA, we have noted a large number of expats who are confused and unsure when proceeding with this process, as a result of the UAE being a tax haven for individuals.
Importantly, we must remember that the application of the DTA is not automatically applied. Those moving to the UAE and those already there, it is never too late to protect your UAE income from taxation by SARS. Your journey in the UAE may already look bright, addressing your tax residency affairs in SA, will ensure that your future shines even brighter.
Ceasing Residency Under a DTA between SA and UAE
Ceasing residency under the DTA provides many unheard-of benefits:
- If you have already moved, and left your concern about SARS back home, your application to cease residency can effectively be backdated to your date of departure;
- Your application to cease tax residency is once-off and will remain in effect for as long as you can prove to SARS that the ‘tie-breaker test’ falls in favour of the UAE;
- The backdating of your application may also result in a refund, in tax previously paid to SARS on your UAE earned income; and
- For those already abroad, with uncertainty on how long they can reside in the UAE, ceasing tax residency under the DTA, offers the flexibility of returning to the sunny shores of SA.
Ready or not, consider switching your tax status to non-resident in SA. Changing your residency status to non-resident under the DTA entails the application of the ‘tie-breaker test’ usually found in Article 4 of your tax treaty. Factors to consider under this test, is not limited to where your key relationships lie — think about your club memberships, political connections, where your pets call home, your permanent address, economic ties, and most importantly where you habitually live. All these factors come into play to make sure the DTA is effectively applied in ceasing residency from a South African perspective.
The fact of the matter is that SARS knows a lot more about taxpayers than they would like to think. Working abroad does not change this. To protect your foreign income, be on the winning side of the battle and seek expert advice.
