South Africa’s transfer to lockdown stage 1, together with the opening of worldwide borders, can have come as an amazing aid for a lot of within the nation.
Though life is certainly not again to regular, this growth does start to create prospects for worldwide journey and tourism once more.
Additionally, from a tax perspective, it might present some aid in respect of quite a few tax points attributable to lockdown, says legislation agency Bowmans.
“Whereas some people have been permitted to enter and go away South Africa, they have been the exception reasonably than the rule,” the agency mentioned.
“For the remainder of this group, the six-plus month journey ban not solely impacted on their capacity to earn an earnings, but additionally had damaging tax implications each for people, and doubtlessly additionally for corporations.”
International earnings exemption
“Numerous South Africans earn a residing abroad. Whereas a lot of them return dwelling frequently, they typically spend enough time abroad to qualify for the international earnings exemption in part 10(1)(o)(ii) of the Revenue Tax Act (ITA).
“When the lockdown was initially introduced in March 2020, they needed to determine whether or not they have been returning dwelling for the lockdown, or whether or not they would keep abroad,” mentioned Bowmans.
When it comes to the international earnings exemption, remuneration earned for companies rendered might be exempt if the South African tax resident was working offshore for greater than 183 days throughout any interval of 12 months and for a steady interval of greater than 60 days throughout that 12-month interval.
Because of a latest modification, the exemption applies as much as a most quantity of R1.25 million per 12 months. People who continued working offshore throughout this era, shouldn’t have any downside qualifying for the international earnings exemption.
Nevertheless, people who returned to South Africa throughout the lockdown interval, both didn’t earn an earnings throughout this era, or would more than likely have been unable to adjust to the necessities of part 10(1)(o)(ii), mentioned Bowmans.
“When contemplating the potential utility of part 10(1)(o)(ii), it is very important remember that the ‘days depend’ within the part refers to ‘any interval’ of 12 months, to not a calendar 12 months or a tax 12 months.
“Within the atypical course, these 12-month durations would run consecutively. Nevertheless, this isn’t a requirement of the part and it ought to thus be attainable to begin a brand new 12-month interval as soon as the person begins working abroad once more,” mentioned Bowmans.
Workers who didn’t obtain remuneration throughout the interval of the lockdown wouldn’t must depend on the international earnings exemption for the lockdown interval however can begin a brand new 12-month interval as soon as they begin working abroad once more, the agency mentioned.
“Nevertheless, the place a person continued working for a international employer, however did so remotely from South Africa, it’s extremely unlikely that he/she would be capable to depend on the international earnings exemption in respect of the earnings so earned.
“Whereas this will doubtlessly be attainable, it might rely on the time spent outdoors South Africa earlier than and after the lockdown, and on when his/her particular 12-month cycle begins.”
With the tip of the journey ban in sight, and with no indication that the foundations relating to the international earnings exemption might be relaxed, it is crucial each for people and for South African employers whose staff could depend on the international earnings exemption, to rigorously assess their present positions and the way the opportunity of journey within the close to future might present some aid, the agency mentioned.
Tax residence – people
A non-resident might turn out to be tax resident in South Africa if he/she grew to become ordinarily resident, or when it comes to the bodily presence check, Bowmans mentioned.
Unusual residence relies on the subjective intention of the taxpayer, however the bodily presence check is an goal check primarily based on the variety of days spent in South Africa over a six-year interval.
A non-resident might turn out to be tax resident when it comes to this check:
- If they’re current in South Africa for greater than 91 days in combination throughout the present tax 12 months;
- In the event that they have been bodily current in South Africa for greater than 91 days in every of the previous 5 years; and
- In the event that they have been bodily current in South Africa for an combination interval exceeding 915 days throughout the previous 5 tax years.
Nevertheless, that is topic thereto that an individual won’t be resident in South Africa if he/she is deemed to be completely a resident of one other state when it comes to a DTA, mentioned Bowmans.
“Non-residents who’ve been unable to depart South Africa since March could also be involved about changing into tax resident because of the lockdown guidelines.
“As atypical residence relies on the intention of the taxpayer, and relying on the private circumstances of a person, it must be attainable for an individual to not turn out to be ordinarily resident in South Africa, even when he/she was unable to depart South Africa as a result of journey ban.”
Nevertheless, what’s the place relating to a person in his/her sixth 12 months of the bodily presence check, who needed to spend greater than 91 days in South Africa as a result of journey ban?
“Because the bodily presence check doesn’t contemplate the intention of the events or any particular circumstances, one can not disregard the variety of days spent in South Africa even when it was resulting from circumstances past the management of the person, Bowmans mentioned.
“That mentioned, if the person is tax resident in a rustic which has concluded a DTA with South Africa, and if such DTA deems the person to be completely resident within the different jurisdiction, the person wouldn’t turn out to be tax resident in South Africa.”
Non-residents who needed to keep in South Africa throughout the lockdown should rigorously assess their present positions and should contemplate how the lifting of the journey ban might be used to their benefit within the context of the applying of the residency checks, the agency mentioned.
Commentary by Esther Geldenhuys (senior affiliate) and Aneria Bouwer (accomplice) of legislation agency Bowmans.
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