South Africa is a residence‐based tax system. If tax reduction is an objective, you can reduce your tax liability as a non‐resident. Our comprehensive South African tax guide shows how non‐residency can affect your income tax obligations.
You can use double taxation treaties, put in place since tax systems differ from country to country, to your advantage. There are ways to make these agreements work for your business. You can minimize your taxable income with a DTA.
While the tax rates offered to non‐resident companies may turn your head, you can guarantee lower tax returns elsewhere. We ensure seven‐ and eight‐figure entrepreneurs and investors legally lower their tax commitments as part of a personalized, holistic Action Plan.
Caption: Which taxes do non-South African residents have to pay in the country?
South Africa Country Overview
The southernmost part of the African continent houses Atlantic and Indian Ocean beaches and land borders with Botswana, independent Lesotho (which it surrounds), Mozambique, Namibia, and Swaziland.
Mining has traditionally been one of the country’s major industries. Manufacturing is a more recent development. Financial analysts predict the South African economy will continue to underperform in 2023, with a 1.4% economic growth, below population growth.
Non-South African Resident Tax Benefits
Where the South African Revenue Service taxes residents on their worldwide income, they tax non-residents on their income from a South African source.
As a developing market, South Africa offers investors a fertile ground for business opportunities. Trade and Investment South Africa is the relevant government body.
Become a Nomad Capitalist client, and we will assist you on your South African entrepreneurial voyage, from setting up a foreign company to maximizing the potential provided by a tax treaty.
Non-South African Resident Tax Requirements
Under South African law, the 1962 Income Tax Act defines a resident using the physical presence test, while South African common law defines an ordinarily resident in South Africa.
The tax authority considers any individual who is ordinarily resident in South Africa during the year of assessment or who meets all three requirements of the physical presence test as a resident for tax purposes.
An individual will be considered to be ordinarily resident in South Africa if South Africa is the country to which that individual will naturally and, as a matter of course, return after their travels. It could be described as that individual’s usual or principal residence or their real home.
To meet the requirements of the physical presence test, an individual must be physically present in South Africa for a period or periods exceeding:
- 91 days in total during the year of assessment under consideration
- 91 days in total during each of the five years of assessment preceding the year of assessment under consideration
- 915 days in total during those five preceding years of assessment.
Individuals who meet the physical presence test, but are outside South Africa for a continuous period of at least 330 full days, will not be regarded as South African residents from the day they ceased to be physically in the country.
Suppose the individual is ordinarily not a resident or fails to meet the requirements of the physical presence test. In that case, that individual will be regarded as a non-resident for tax purposes.
You can also become a tax non-resident by ceasing to be a tax resident in South Africa.
Non‐Resident Employment Income
A non-resident’s employment income earned in South Africa is subject to normal tax in South Africa unless there is a DTA between South Africa and the foreign country in which they reside.
The starting point for a non-resident who renders services in South Africa is that the employment income is subject to normal tax in South Africa.
If, however, a DTA is in existence, and all three of the following requirements are met, the employment income will not be subject to normal tax in South Africa:
- They are present in South Africa for a period or periods in aggregate not exceeding 183 days in any 12-month period
- A South African permanent establishment does not bear their remuneration that the foreign employer has in the country, as in a fixed place of business through which the business of the employer is wholly or partly conducted.
Pension and Annuities
A lump sum, pension, or annuity from a pension fund, pension preservation, provident fund, or provident preservation fund and the services in respect of which that amount is received or accrued were rendered in South Africa counts as taxable income.
Suppose the amount received or accrued relates to services rendered inside and outside South Africa. In that case, they treat only the portion of the amount relating to services rendered in South Africa as countable income.
Interest
Interest received by or accrued to a non-resident from a source within South Africa is exempt from normal tax in the country unless the non-resident was physically present for a period or periods exceeding 183 days in aggregate during 12 months preceding the date on which the interest is received by or accrues to that person or the debt from which the interest arises is effectively connected to a permanent establishment of that person in South Africa.
Interest received by a non-resident that is exempt from normal tax will, however be subject to a withholding tax of 15%, provided the non-resident was physically present for a period or periods not exceeding 183 days in aggregate during 12 months preceding the date on which the interest is paid or the debt from which the interest arises is effectively connected to a permanent establishment of that person in South Africa, and that person is registered as a taxpayer in South Africa.
Dividends
Dividends tax is payable at a rate of 20% on dividends paid by companies that are South African resident companies (other than headquarter companies). Dividends tax is also payable on a foreign dividend, and foreign companies pay it for listed shares.
Dividends from a South African source received by or accrued to holders of shares are exempt from normal tax; however, this rule has some exceptions.
An exemption applies if the beneficial owner is a person that is not a resident and a foreign company pays the dividend in respect of a listed share.
Royalties
A final withholding tax of 15% applies to know-how payments received by or accrued to such a person for the use or right of use of intellectual property or the grant of permission to use such property in the country. You are exempt from the withholding tax on royalties if:
- You are physically present in the country for a period exceeding 183 days in aggregate during the 12-month period preceding the date on which the royalty is paid
- The property in respect of which the royalty is paid is effectively connected to a permanent establishment in South Africa
- The royalty is paid by a headquartered company in respect of the granting of the use or right of use of or permission to use intellectual property as defined and subject to certain exclusions.
Rental Income
The source of rental income is generally regarded to be where the property is used on a day-to-day basis. Rental income counts as taxable income. Expenses such as rates and taxes, bond interest, insurance, and repairs may be claimed as deductions against such rental income, subject to certain conditions.
Capital Gains Tax
Any growth in the value of the following assets generates taxable income by triggering a capital gains taxation liability:
- Immovable property such as a farm, flat, house, or vacant land.
- Equity shares in a company when 80% or more of the market value of those equity shares is attributable to immovable property
- A vested interest in a trust if 80% or more of the market value of that vested interest is directly or indirectly attributable to immovable property in South Africa.
- The assets of any permanent establishment of a non-resident in South Africa.
Assets of permanent establishments are also subject to capital gains.
Estate Duty
Tax authorities charge estate duty is upon the dutiable amount of the worldwide estate of every person who dies. The estate is, however, limited in the case of a non-resident (a natural person not ordinarily resident in the country) by excluding foreign assets of persons not ordinarily resident in South Africa. They exclude foreign property, stocks, and shares from the estate of a deceased person who was not ordinarily resident in the country at the date of their death.
Tax Obligations of South African Non-Residents Conclusion
Whether you reside in the country or abroad, you are liable to income tax. This income tax is paid by South African resident companies and foreign businesses alike. Yet small business corporations are given preferential tax rates.
The residence-based tax system means a South African resident pays tax on their foreign income while a non-South African resident pays a South African tax on their South African income.
As a non-South African company, you will cut back on the likes of capital gains tax, dividends tax, and withholding tax. But there may be better options available which is why we always recommend shopping around.
Confused by taxes and need help reducing your overall tax burden? At Nomad Capitalist we can help you legally reduce your taxes while also opening new investment opportunities as part of a specially-tailored Action Plan.
South African Non-Residency Tax Liability FAQ
Yes. The taxable income of non-residents is any income from a South African source.
Be physically absent. Remain outside the country for a continuous period of at least 330 full days, and the tax authorities will consider you a non-resident from the day you leave it.
A non-resident pays capital gains tax on assets such as South African immovable property or any interest or right of whatever nature of the natural person to or in immovable property situated in South Africa. Examples include a farm, flat, house, or vacant land.
We can assist you with more than income tax and tax residence in South Africa. Our holistic plans leave no nook or cranny uncovered. We have your best interests at heart.
