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Article contributed by Midrand Chartered Accountant - Audrey Muvezwa

When it comes to individuals, who needs to pay tax according to South African Income Tax Law?

In South Africa, we use a residence-based tax system. This means that if you are a considered to be a resident of South Africa for tax purposes, then you will be taxed on worldwide income. Let’s look at some simple examples: (note that there is extensive tax law surrounding the determination of whether someone is a resident of South Africa for tax purposes, I have used simplified examples to help you to understand the basic concept)

Please note that these are purely examples and bear no resemblance to any person, living or dead.

  1. Meet Lerato. She is 25 years old and has an aeronautical engineering degree. She works in the East of Johannesburg where she builds of planes for a living. Lerato lives in Benoni and visits her parents in the Eastern Cape for Christmas and Easter.

If you look at the details, Lerato resides in South Africa and earns her salary in South Africa as well. There is therefore no doubt about her residency and she will pay tax in South Africa.

  1. Meet Angie. Angie is turning 35 and is peaking in terms of her career. She is a sought after computer programmer and just sold the license of a very intricate piece of software that she created to a large company in Germany. Angie lives in Cape Town.

Angie lives in Cape Town but her revenue is being generated overseas. Will she pay tax in South Africa or not? Because Angie’s primary place of residence is considered to be South Africa, Angie will have to pay tax on her worldwide income. This means that even though her income is coming from a foreign country, she is still liable to pay tax in South Africa.

  1. Sifiso just finished an online TEFL course. He can now get a job in China teaching English to primary school learners. Fast forward 2 years, Sifiso lives in China with his girlfriend Wei Ling. He has no intention of moving back to South Africa. (Sifiso does not own a house in South Africa and he does not have any close family here.)

Sifiso does not pass the physical presence test because he has not been in South Africa for a period of more than 91 days in any of the 2 years of assessment. He has no intention of returning to South Africa to reside.

For these reasons, Sifiso is considered not to be a South African resident and will only pay tax on deemed South African earned income – for example if Sifiso has a novel published in South Africa and receives royalties from the South African publishing company, those royalties will be subject to tax in South Africa.

These are very basic examples to try and portray the difference between residence and non-residence in South Africa according to South African Income Tax Law. Know that residence and non-residence is treated on a case by case basis by the courts.

Are you a considered to be a tax resident of South African Income Tax purposes?