Managing tax for SA mining expatriates: issues and solutions

Effective tax management, thorough understanding of laws, ensuring compliance, and optimising tax liabilities through strategic planning and meticulous record keeping are vital.

As of 1 March 2020, South African tax residents living and working abroad are required to pay tax of up to 45% on their foreign employment income if they earn more than R1.25-million per year. There are however mechanisms embedded in the tax legislation which could assist in alleviating some of the high tax burden.

Similarly, thanks to the long lead times in mining, foreign expats working in South Africa for foreign multinationals can also find themselves in a predicament if they are not South African tax residents but nevertheless are present in the country for more than 183 days. This presence would render them liable to be registered and to pay tax in South Africa as well as in their home country.

In both cases, effective tax management, thorough understanding of laws, ensuring compliance, and optimising tax liabilities through strategic planning and meticulous record keeping are vital.

Below is an overview of some key tax considerations for South African expatriates working abroad:

Determining tax residency

Determining whether an expatriate is a tax resident or non-resident of South Africa is crucial as it affects the taxation of worldwide income versus South African income.

In South Africa we have two tests which determine an individual’s tax residency:

• Ordinary Residence Test: This test is used to determine where an individual normally resides and considers his or her home.
• Physical Presence Test: This test calculates the number of days the individual physically spent in South Africa – 183 days in any tax year and at least 91 days in each of the preceding five years means that the individual is deemed to be a South African tax resident.

It is advisable that expatriates, either South Africans living and working abroad or foreigners living and working in South Africa keep detailed travel and residency records and consult with a tax professional to accurately determine their tax residency status.

Double taxation

Expatriates may find themselves in a situation where they face taxation in both South Africa and the host country, leading to double taxation. South Africa has Double Taxation Agreements (DTAs) with numerous countries that regulate the taxing rights of each country in relation to the type of income earned and provide mechanisms for tax relief. In some cases, foreign income may be exempt from South African tax if it has been taxed in the host country. Tax credits for taxes paid abroad can also be used to offset South African tax liabilities

Understanding the taxing rights afforded under DTAs is essential to apply exemptions or credits to avoid double taxation. It is recommended that a tax advisor is consulted to assist with the intricacies associated with DTAs and tax credits in order to determine how they would apply to expatriates working in South Africa, or South Africans working abroad.

Compliance with South African tax laws

Navigating South African tax laws can be complex, requiring registration, timely filing, and payment of taxes. Expatriates need to ensure they are registered with the South African Revenue Service (SARS) and comply with their tax obligations.

Expatriates who are South African tax residents must declare all worldwide income and file tax returns in South Africa.

Expatriates who are considered non-residents must declare income sourced from South Africa and may need to register and file returns. Companies may have to withhold tax on payments to non-residents and are responsible for filing and remitting these taxes to SARS. For income not subject to PAYE, provisional tax payments must be made based on estimated income.

Meticulous record keeping

Maintaining detailed records of all income, expenses, and tax payments is critical. Expatriates should keep copies of employment contracts, payslips and correspondence with tax authorities.

Utilising tax-efficient structures

Without strategic planning, expatriates may miss opportunities to reduce tax liabilities. Where legally permissible, using offshore trusts or companies can aid in managing income and assets in a tax-efficient manner.

Effective tax management for South African expatriates in the mining industry involves understanding residency status, utilising double taxation agreements, ensuring compliance with local laws, and employing strategic tax planning. By addressing these issues with informed solutions and seeking professional advice, expatriates can optimise their tax liabilities and focus on their professional endeavours in the mining sector. Proper documentation and proactive planning are essential to navigate the complex tax landscape and achieve financial efficiency.

Navigating the complex tax landscape without expert guidance can lead to costly mistakes and non-compliance. Expatriates should engage tax professionals with experience in expatriate and mining industry tax issues to provide tailored advice and assist with compliance and optimisation strategies.

Author
Devs Moodley, Senior Manager: Tax Consulting

^{*This article was also published on African Mining: Managing Tax for SA Mining Expatriates: Issues and Solutions.}