South African expats in the UAE fearing a potential end to their tax-free status have remained on tenterhooks during 2017, as a sovereign tax saga unfolds with three letters: DTA.
The DTA between South Africa and the UAE
In December 2016, South Africa and the UAE formally agreed an updated Double Taxation Agreement (DTA). DTAs essentially mean that income and assets taxed in one country – say, an expat’s country of residence – won’t be taxed also back home.
DTAs are an important factor that comes into play when expats take advantage of their pension transfer options. They also make working abroad that much more profitable.
The full report of the UAE and South Africa’s agreement is here, should you want to plough through it. This agreement followed a similar agreement between South Africa and Saudi Arabia.
What’s been the key issue, then?
The issue, bru, relates to a statute in the Income Tax Act of South Africa.
Section 10(1)(o)(ii) has, until now, allowed tax-exempt status on earnings generated outside South Africa when:
- that person is outside their home state for more than 183 days, including 60 days in a row, over 12 months.
- Their work take place during these periods abroad
But in the 2017 National Budget Speech, Malusi Gigaba, minister of finance proposed to amend the exemption, so that overseas income could only be exempt if it is subject to tax in the foreign country.
Where the foreign country has no income tax, therefore, the taxman back home gets to claim it!
However, the DTA between South Africa and the UAE allows certain exceptions. The main exemption is where South Africans claim to be non-resident in their home country; exclusive, as it were, to their host nation (as expats) instead.
So, as a South African expat in UAE, what should my next tax steps be?
It is possible that you will be able to claim to be non-resident in your home country. You will need to satisfy tough criteria.
Speak to a professional. This is complicated stuff, and only a pro will truly be able to give you a reliable assessment of your unique personal situation.
So, whether alone – or preferably with an IFA – you will need to, firstly, determine whether you’re currently considered tax resident in South Africa, and whether you can be considered as ‘treaty resident’ in UAE instead.
If so, go over your assets and holdings in South Africa and consider the exit taxes applicable when disposing of those assets – such as capital gains tax if your shares/company stake/property has risen in value.
You may need to engage a tax adviser on the ground in South Africa, since you’ll need to report this tax position to the South African Revenue Service (SARS). Also relevant will be any earnings you’re currently making back home from a stake in a company, or freelance work.
You’ll then need to get together all documentation declaring you non-tax resident in South Africa – such as a UAE tax-resident certificate.
Look over your big financial picture with your IFA
The DTA between South Africa and the UAE was not designed to give expats an easy financial ride. PricewaterhouseCoopers points out that the key aim “was to alleviate administrative burdens associated with international workers – not to provide a complete exemption from tax.”
Not music to your ears as a South African expat in the UAE. So collar your financial adviser! We’re talking about your overall tax position, which encompasses the savings and investments you’ve already set up and their potential ‘capital gains’; the impact of your UAE tax-resident status on assets owned outside both UAE and South Africa (ie, does the UAE have a DTA with that third country?); the potentially-improved options in securing a UAE-based mortgage.
Holborn Assets is happy to work with you and complement any specialized tax advice back home. Let the local experts do their thing.
Make sure you discuss how a potential UAE tax-resident status will affect any future ‘exit strategy’ when you’re looking to move back to South Africa for good.