Many individuals are under the impression that they need not pay tax to SARS should the income have been earned outside the country’s borders. The following information is very important for South African citizens who have concluded contracts to work outside the country’s borders.
You as individual are liable for income tax at all times for services rendered, whether it be inside or outside South Africa’s borders. You are legally bound to declare your world-wide income to SARS by completing a tax form annually on which you indicate this world-wide income.
The fact that you are being paid by a South African or an overseas company has no influence on your tax liability in South Africa.
Should you have complied with the 183/60 days rule, your income in not taxable in South Africa, regardless of whether it was earned by working for a South African or an overseas company. The days requirement applies to you as an individual. Every individual person must be able to prove to SARS that he/she has complied with the days rule, and then SARS will grant the exemption in terms of section 10(1)(o)(ii) of the Income Tax Act (No. 58 of 1962). Should you not comply with the days requirement, all your income in South Africa will be taxed, regardless whether it was earned inside our outside the country’s borders or whether it was work performed for a South African or a foreign company.
If you have complied with the 183/60 days rule, your income will not be taxed in South Africa and the employee tax subtracted from your income will be paid back to you by SARS as soon as your income tax form for the specific tax year has been processed.
If a company wants to subtract tax from your income monthly, they have to provide you with a salary slip every month, indicating precisely how much tax they have subtracted from you as individual and paid it over to SARS. At the end of the contract or the tax year (whichever comes first) the company then has to provide you with an IRP5 certificate on which it is indicated how much employee’s tax was subtracted from you. This IRP5 certificate therefore is your receipt and your proof to SARS that tax was in actual fact subtracted from your income.
Another important fact to keep in mind is the matter of foreign bank accounts. Opening a South African or foreign bank account makes absolutely no difference to your tax situation in South Africa, and therefore it is not important to SARS whether you have an overseas or a South African account.
The fact of the matter is: All income (world-wide) has to be declared to SARS, regardless of which bank account it has been paid into. An overseas or local bank account therefore does not hold any financial advantage or disadvantage for you. The choice is yours, and is determined by what suits you the best. Just keep in mind that very strict control measures are now in place regarding money that you transfer from a foreign bank account to your South African bank account.