South Africa has a residence-based tax system, which means residents are, subject to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned. By contrast, non-residents are taxed on their income from a South African source.
Since tax systems differ from country to country, there is a chance that a particular amount could be taxed twice. This possibility of double taxation is, however, often alleviated by tax relief contained in various Double Taxation Agreements (DTAs)
. These DTAs are international agreements contracted between countries to deal with potential competing taxing rights against the income of the same taxpayer.
DTAs are important for encouraging investment and trade flow between nations. South Africa has DTAs with a number of other countries with a view to, amongst other things; preventing double taxation of income accruing to South African taxpayers from foreign sources, or of income accruing to foreign taxpayers from South African sources.
Why do we need to know whether an individual is a non-resident?
Although South Africa taxes residents on their worldwide income, taxpayers who are non-residents will be taxed only on their income that is sourced in South Africa (such as interest on capital invested in a local bank; or rental income generated from a fixed property situated in South Africa). A distinction therefore needs to be made between a resident and a non-resident for tax purposes
Who is regarded as a non-resident?
Let’s start by defining what we mean by resident. Understanding that, you will know whether you meet the criteria or not and thus whether you can be regarded as a resident or a non-resident.
Under South African law there are different types of residents, for example a resident defined by the Income Tax Act, 1962 in terms of the so called physical presence test and an ordinary resident
defined in terms of South African common law.
Any individual who is ordinarily resident (common law concept) in South Africa during the year of assessment or, failing which, meets all three requirements of the physical presence test, will be regarded 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 his or her wanderings. It could be described as that individual's usual or principal residence, or his or her real home. If an individual is not ordinarily resident in South Africa, he or she may still meet the requirements of the physical presence
test and will be deemed to be a resident for tax purposes.
To meet the requirements of the physical presence test that 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; and
- 915 days in total during those five preceding years of assessment.
An individual who fails to meet any one of these three requirements will not satisfy the physical presence test.
If the individual is neither ordinarily resident, nor meets the requirements of the physical presence test, that individual will be regarde