Tax Residency and Emigration: What South Africans Abroad Need to Know
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For years, many South Africans working abroad—particularly in tax-free jurisdictions like the United Arab Emirates (UAE) or Saudi Arabia—believed their foreign income was off SARS’s radar. However, that changed on 1 March 2020, when section 10(1)(o)(ii) amendment to the Income Tax Act came into effect, opening a new chapter for South Africans working abroad.
A Tax Loophole Closed: What Changed in 2020?
The new rule states that if you’re still a South African tax resident and earn more than R1.25 million annually for work performed abroad, SARS wants its share, regardless of where you’re working. This change wasn’t just a tweak in policy—it was SARS’s response to years of growing concern over double non-taxation. The amendment now applies to all South African tax residents, whether based in a tax-free Middle Eastern country or a high-tax zone like the UK.
Below, we look at what may have prompted this change, how it affects expats in different regions, and what it takes to break tax residency with South Africa.
Why Did the Tax Law Change?
The Issue of Double Non-Taxation
The amendment to section 10(1)(o)(ii) of the Income Tax Act was primarily introduced to address a growing concern about double non-taxation. This loophole allowed South African tax residents working abroad to avoid paying income tax both in their host country and South Africa.
This was especially prevalent in countries such as the United Arab Emirates, Saudi Arabia, Kuwait, and Qatar, where no personal income tax is levied on employment income. Although some of these countries levy a form of personal taxation, a wealth-based contribution, it does not apply to most South African expatriates, as they typically do not own property or accumulate wealth within these jurisdictions. Consequently, they can earn substantial foreign remuneration without facing tax liability.
Paying Tax At Least Once
By contrast, South Africans employed in countries such as the United Kingdom, Germany, Australia, or the United States were subject to standard income taxation in those jurisdictions. They remained South African tax residents, qualifying for relief under section 6quat or double taxation agreements (DTAs), ensuring they were not taxed twice on the same income. The key distinction is that these individuals were taxed at least once, unlike their counterparts in tax-free jurisdictions.
It created an unfair environment where some residents could avoid tax entirely based solely on the tax laws of their host country, not because of any formal change in their South African tax status. This undermined the integrity of the residence-based tax system, which is designed to tax South African residents on their worldwide income, subject to applicable exemptions or relief.
The 2020 legislative amendment was designed to plug this gap by introducing a cap of R1.25 million on the foreign employment income exemption. Income earned above this threshold would now be subject to normal income tax in South Africa, regardless of whether tax was payable abroad. This ensures a minimum level of taxation on foreign income while still offering relief to lower-earning expatriates.
Notably, the exemption threshold applies across the board, not just to individuals working in tax-free countries. Whether a South African resident works in Dubai, Doha, London, or New York, the R1.25 million cap applies uniformly. The intent is to promote fairness, neutrality, and compliance by ensuring all South African tax residents contribute proportionately, especially those who still maintain personal or economic ties to the country. In addition, if you work in a country that levies income tax, like Germany or the US, you may qualify for a foreign tax rebate under section 6quat. However, you cannot claim this rebate in the Middle East, where no tax is paid.
Are You a South African Tax Resident?
If you’ve formally emigrated and changed your tax status with SARS, then the new exemption threshold doesn’t apply. Your foreign income is only taxed where you live.
But if you haven’t notified SARS and still meet the residency criteria (like maintaining ties to SA), you could be liable for tax, even if you’ve been abroad for years.
The 2020 amendment caused a surge in tax residency status changes, especially among expats in the Middle East.
Emigration to the UAE: A Special Case
Thousands of South Africans have lived in the United Arab Emirates (UAE) for decades, often on renewable work permits with no local income tax. However, these countries don’t offer expats citizenship or formal tax residency status.
So even if you've been away for years, you may still be deemed "ordinarily resident" in South Africa. As Schreiner J.A. stated in Cohen v CIR (1946 AD 174, 13 SATC 362):
“Since Middle Eastern countries don’t allow property ownership or permanent settlement for most expats, SARS sees these workers as South African residents “by default”
📌Beware of misconceptions that persist:
Tax Residency Letters from the UAE Treasury are issued to South Africans but are not backed by income tax registration, making them meaningless in the eyes of SARS.
Tie-breaker clauses in tax treaties apply only if someone is considered a resident in both countries. But if you can’t legally become a resident in the UAE, the clause doesn’t apply, regardless of how long you’ve lived there.
Taxpayers cannot be nomads; they must be aligned to a state! And SARS knows this too!
Thousands of South Africans live and work in the UAE. They’ve paid no local tax—and enjoyed it. But now, they face a serious hurdle: their host countries don’t offer expats permanent residency, tax numbers, or citizenship.
In SARS’s eyes, that means you haven’t legally moved. The courts agree. Cohen v CIR (1946) ruled that “ordinary residence” means the country you consider home—the place you return to:
“A person’s ‘ordinary residence’ is essentially the country that the individual considers to be their true home—the place to which they would naturally and habitually return after periods of absence.”
With no passport, fixed property, or long-term ties to the UAE? SARS will consider South Africa your default home base.
Beware that some expats try presenting tax residency certificates from UAE authorities. Others invoke tie-breaker clauses in tax treaties. Neither holds up:
The UAE doesn’t register individuals for income tax—it has no such system.
Tie-breaker rules only apply if both countries claim you as a tax resident, which isn’t true when your host country has no income tax law.
The bottom line is that working in another country doesn’t equal emigrating from SA, and SARS knows it.
Emigration to Other Countries
The road to non-residency is smoother if you're in the UK, Australia, Canada, or most of Europe. You're paying tax locally, have a tax number, probably own a home or have permanent residency, and your life is rooted there.
Many also hold dual citizenship, making long-term settlement easier. If you meet SARS’s:
Objective tests (visa, job contract, property ownership), and
Subjective tests (intent to stay permanently),
...you’re likely to be approved for tax residency cessation. But only once SARS confirms it in writing.
📌Note: Even if you are no longer an SA Tax Resident:
You may need to file returns in both countries, i.e. declare and pay tax on any SA-sourced income (like rental property) and capital gains tax when selling an SA-based asset.
You’ll likely need to file a final return and settle exit taxes on capital gains.
Final Takeaway: Living Abroad Isn’t Enough
The R1.25 million exemption was a wake-up call, not just a tax threshold. It forced South Africans to confront a harsh truth: working abroad doesn’t mean you’ve emigrated—at least not in SARS’s eyes. Simply leaving South Africa on a one-way ticket does not, in itself, make a person a non-resident for tax purposes.
If you're still tied to South Africa, you could be taxed there. The only way to break that link is to go through the formal process and get SARS’s stamp of approval.
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