Do digital nomads need to pay double tax?

Further to our article on insurance for digital nomads, we explore the tax implications of working for South African companies in other parts of the world.  

Tip: Is debt preventing you from travelling abroad? Explore debt consolidation today.

Roaming residents and tax – double jeopardy

Many digital nomads working for South African employers are dismayed to discover that they may be liable to pay income tax not only to the South African Revenue Service (SARS), but also to the foreign revenue service of the country in which they are working.

However, notes Delano Abdoll, legal manager: cross-border taxation at Tax Consulting South Africa, you can avoid being double taxed if you are no longer considered by SARS to be a tax resident.

Should you update your South African tax residency?

South Africa operates on a residency-based tax regime, meaning residents are taxed on their worldwide income, while non-residents are taxed on SA-sourced income.

If you’re a South African resident who has worked abroad under an employment contract for more than six months in a 12-month period, and you spend 60 consecutive days overseas, you may qualify for a foreign employment remuneration exemption.

“This exempts your foreign remuneration up to a maximum of R1.25 million in a single tax year,” says Nicci Courtney-Clarke, head of tax at TaxTim. This doesn’t render you a non-resident in SA, however, and the formal process to cease South African tax residency will still need to be followed.

“Ceasing tax residency is a formal process involving various compliance requirements, with the most important being SARS’ Notice of Non-Resident Tax Status Confirmation Letter,” says Abdoll.

“SARS issues this letter as a formal confirmation of your non-resident tax status, detailing the exact date on which you ceased your SA tax residency. This is currently the only accurate measure of SA tax non-resident status.”

Double tax agreements and their implications

While the process has an air of permanency, you can temporarily cease your tax residency if you wish to return to SA in the foreseeable future; but only if you live and work remotely in a country that has a Double Tax Agreement (DTA) with SA.

A DTA is an agreement between two countries that is set up to avoid the same income being taxed in both countries.

“There are requirements that must be met to confirm the country in which you qualify as a tax resident, when you’re seen as a dual resident,” says Courtney-Clarke.

If there is a DTA in place between your host country and SA, you should find out whether you will be regarded as a tax resident in the country in which you choose to work and live, or whether your circumstances would support a “tie-breaker” test. This assessment takes various factors into account when deciding between tax jurisdictions. 

“If your circumstances change and you wish to remain abroad permanently, you can of course opt to cease tax residency permanently, which is known as financial emigration,” says Abdoll.

Engage a tax specialist

The reality remains that if you’re a South African expat working for an SA employer, SARS and the foreign revenue authority in your country of residence will have their eye on you.

“To avoid double trouble, ceasing your tax residency under a DTA may be the right option for you,” says Abdoll.

“The DTA process entails several compliance requirements and is best done with the assistance of cross-border DTA specialists.”

Tip: Facing an unexpected tax bill? A personal loan can help to tide you over.