Residence Based Taxation - The Real Cost of Being 'Resident' in SA
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Think you can dodge tax just by earning abroad? Not so fast. In South Africa, your passport matters less than your presence. Welcome to the world of residence-based taxation, where even your foreign paycheck or any earnings could spark a visit from SARS.
You live here, you pay here.
South Africa runs a residence-based tax system. That means SARS doesn’t just tax you on what you earn inside the country. If you’re a tax resident, it wants a slice of everything you earn, anywhere in the world.
But how do you know if you're a resident? SARS applies two tests:
Ordinary Residence Test: Where is your usual or permanent home? If SA is your base, you’re in.
Physical Presence Test: Have you spent more than 183 days in South Africa during a 12-month period (plus other conditions)? You’re in.
If you pass either test, SARS considers you a resident for tax purposes.
Good News: You Will Not Pay Tax Double
If you’re a South African tax resident and earn income from another country, you might worry about being taxed twice, once abroad and again by SARS. Fortunately, this is not the case. Section 6quat of the Income Tax Act offers relief allowing you to claim a credit for foreign taxes already paid on the same income, reducing your tax liability. This doesn’t eliminate SA tax completely, but it reduces the amount payable to SARS, depending on South Africa’s tax rate and how much was already paid offshore.
Note: You still need to declare the income and apply the credit correctly. SARS may reject the claim if the documentation is incomplete or if the income isn’t properly disclosed.
Example:
Sipho works remotely from Johannesburg for a German company earning €25,000 during the 2025 financial year. This translates to R485,250 using the exchange rate of R19.41 on 28 February 2025. Germany withholds €5,000 (R97,050) in income tax on his salary. When Sipho files his tax return in SA, he must declare the full income but can claim that R97,050 as a Section 6quat foreign tax credit, provided he has proper proof (like a German tax certificate).
Double Tax Agreements (DTAs) are in place to prevent double taxation by deciding which country has the right to tax specific income. If you’re a South African resident earning income overseas, a DTA might exempt that income from SA tax entirely. For example, the SA-UK DTA states that rental income from UK property is only taxable in the UK, even if you live in SA.
Note: You still have to declare it to SARS, but no South African tax will apply. If no DTA exemption applies, Section 6quat of the Income Tax Act lets you claim a credit for tax already paid overseas, reducing your local tax liability. Either way, proper disclosure and documentation are essential.
Case Studies
Let’s break it down with real-life examples. These aren't just stories—they’re tax traps waiting to happen if you don’t know the rules.
1. Working Remotely from South Africa
Lebo lives in Cape Town but works remotely for a UK tech company. She receives her salary in pounds, paid into a UK bank account.
Residence Test: Since Lebo is physically based in South Africa, she meets the ordinary residence test. This means her global income, including her UK salary, must be declared to SARS.
Relief? Lebo could qualify for the R1.25 million foreign income exemption under Section 10(1)(o)(ii), but only if she physically works outside South Africa for more than 183 days in a 12-month period, with at least 60 of those days being continuous.
Reality Check: Because she works from her lounge in Cape Town, the exemption doesn’t apply. She must pay tax on her full income.
2. Working Outside South Africa
Johan lives in Durban and works offshore on an oil rig in Angola for nine months of the year.
Residence Test: Even though Johan spends most of his time outside South Africa, his permanent home and family are in Durban. That means he meets the ordinary residence test.
Outcome: He must declare his entire income to SARS. Johan thought he was exempt and didn't declare this income for two years, which has now resulted in penalties and interest.
3. Owning Oversees Properties
Nandi is based in Johannesburg. She owns a two-bedroom apartment in London, which she rents out to tenants through a letting agent.
Implication: Nandi is clearly a South African tax resident. As such, she must declare not only her local income, but also her rental income from the UK property.
Good News? South Africa has a Double Tax Agreement (DTA) with the UK. This may allow Nandi to avoid being taxed twice on the same income, but she must still declare the income to SARS and then apply the relevant DTA provisions correctly.
Warning: Many taxpayers assume that foreign income is "invisible" to SARS if it never enters a South African bank account. This is false. Non-disclosure can result in audits, penalties, and even prosecution.
4. Foreigners Owning Property in South Africa
Thabo lives and works full-time in Botswana. However, he owns a flat in Johannesburg which he rents out to long-term tenants.
Tax Residency and Source: Thabo is not a South African tax resident. But because he earns rental income from a South African property, that income is South African sourced and still taxable by SARS.
Lesson: Even non-residents may have to deal with SARS if they earn local income. This highlights the difference between residence-based and source-based taxation. Thabo doesn’t need to declare his salary and other earnings in Botswana, but his SA property income must be taxed in South Africa.
This example helps clarify the rules:
If you're a resident, you must declare all your income in South Africa.
If you're a non-resident, SARS still wants a cut of anything sourced from South Africa.
Avoiding the Audit: 5 Things Every Taxpayer Should Do
Working Outside SA: Track Your Days
If you’re working overseas, log every day carefully. SARS might check.
Declare Everything
Foreign salary? Overseas property income? Don’t leave it out.
Use Double Tax Agreements
Avoid being taxed twice, but only if you declare and apply correctly.
Get Advice Before You Move
Residency can change quickly, and so can your obligations.
File Properly
Use correct SARS source codes. Attach supporting documents. Don't guess.
The CIBA View: It’s Not Just About SARS—It’s About Economic Freedom
South Africans must fund public goods, yes. But unclear tax rules and global income traps hurt economic growth, mobility, and investment. CIBA backs clear, simple, fair rules that help honest taxpayers comply without legal gymnastics.
Economic freedom begins with tax clarity. Residents need to know where they stand—because uncertainty costs more than tax.
