SARS double-tax warning for South African expats – BusinessTech

The South African Revenue Service’s (SARS) inefficiencies are leaving expats in limbo, contending with double taxation unnecessarily.

This is according to consulting firm Latita Africa, which said that South African expats abroad face increasingly turbulent waters regarding taxes. 

The company explained that many expats depend on Double Tax Agreements (DTAs) to prevent double taxation on the same earnings.

However, there seems to be a blind spot from a tax administration standpoint. Concerns are growing about applications submitted to SARS, pointing out systemic inefficiencies which are causing delays in crucial decisions.

If an individual is a tax resident in another country but a tax non-resident in South Africa, they may be eligible for relief from South African tax on their South African pensions and annuities.

South Africa has 22 DTAs that provide for this relief, including agreements with the UK and New Zealand, among others.

However, it is important to note that a DTA does not automatically apply, and the taxpayer must claim the relief measures.

According to the firm, the process of claiming DTA relief can be problematic.

The firm said that if an individual has been a tax non-resident for three or more years, they can cash out their South African retirement interests as a lump sum payment.

This means that they can withdraw all their retirement savings at once. However, if an individual has previously withdrawn their retirement savings as a lump sum and now receives an annuity, they must withdraw the funds gradually at a maximum rate of 17.5% per year.

For instance, if someone is retired and has already started withdrawing from their retirement savings, they are not allowed to withdraw the entire amount in one lump sum when they relocate overseas.

It is important to note that a lump sum withdrawal from a retirement fund can only be made after SARS has issued a directive on how much tax should be withheld.

However, it is not possible to claim DTA relief at the directive application stage to confirm that no tax will be withheld.

This means that many people who have previously made a lump sum withdrawal were not aware that they qualify for DTA relief. Even those who are aware will have to wait until they file their next return and then lodge a dispute against the tax withheld.

This may not be a problem for some expats, but for many others, it means that they may potentially have to deal with double taxation, even if only temporarily.

For expats whose retirement interests have already been annuitised, there is a route to obtain a Nil tax directive from SARS. 

To apply for an RST01 directive, one needs to complete an application form, get it signed and stamped by the revenue authorities in their country of residence, and send it to SARS.

However, according to a firm, many expats who apply through this route never receive a response.

This backlog not only affects business operations but also undermines trust in the tax system.

A firm has reported that claiming DTA relief from tax on annuities in South Africa is theoretically possible, but in reality, it is difficult to get an actual outcome from SARS on the matter.

This has caused mounting confusion and frustration among taxpayers, especially expats.

The lack of transparency and consistency in the SARS’ application process and the absence of any structured timeline for processing these applications exacerbates the situation.

Taxpayers are left in limbo for extended periods, often indefinitely. One expat experiencing this issue with SARS said, “The situation is clearly simply untenable for me or anyone in a similar situation.”

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