SARS tax treaties lead to double tax dilemma for expats

Over the past few years, South African expatriates abroad have had the unenviable task of navigating increasingly turbulent and uncertain waters when it comes to tax. Many expats often rely on relief in terms of Double Tax Agreements (DTAs) to avoid being taxed twice on the same income.

However, in some areas, it seems there may be a blind spot from a tax administration perspective, with concerns increasingly surfacing around applications to the South African Revenue Service (SARS), highlighting systemic inefficiencies causing delays in critical decisions.

DTA Tax Relief

Where an individual is tax resident in another country (and tax non-resident in South Africa), they may be eligible for relief from South African tax on their South African pension and annuities. South Africa has 22 DTAs that provide for this relief, including those in place with the United Kingdom and New Zealand, for example.

However, a DTA does not automatically apply, and these relief measures must be claimed by a taxpayer.

Retirement Withdrawals for Expats

If you have been a tax non-resident for 3 years or longer, you can encash your South African retirement interests as a lump sum payment. However, if you have already made a lump sum withdrawal, and now receive an annuity, then this must be drawn down over time (up to a max of 17,5% per year).

When it comes to claiming DTA relief, however, it gets problematic.

Lump Sum Withdrawals

A lump sum withdrawal can only be made after SARS has issued a directive on how much tax must be withheld by the retirement fund provider, who must then follow suit. However, claiming DTA relief at the directive application stage (to confirm no tax) is not possible.

This means that, in practice, many have previously made a lump sum withdrawal but were not aware of the fact that they qualify for DTA relief. And for those who are aware, it means that they will have to wait until they file their next return and then lodge a dispute against the tax withheld.

For some expats, this may be a minor inconvenience or no problem at all. But for many others, it means that they may potentially have to contend with double taxation, even if just temporarily.

Retirement Annuities

For those expats whose retirement interests have already been annuitized, there is a route to obtain a Nil tax directive from SARS. This is done by completing an RST01 directive application form, having it signed and stamped by the revenue authorities in their country of residence, and sending it to SARS.
However, notwithstanding SARS stating that there is a defined process to follow with SARS in this regard (i.e., sending the form to their “contactus” email address), many expats who do take this route quite simply never get a response.

This backlog not only impedes efficient business operations but also erodes trust in the tax system. According to one expat experiencing this issue with SARS, “the situation is clearly simply untenable for me or anyone in a similar situation”.

This is correct. In most cases, while claiming DTA relief from tax on annuities in South Africa is certainly theoretically possible, getting an actual outcome from SARS on the matter is another matter altogether.

The lack of transparency and consistency in SARS’ process for these applications, embodied in the lack of clearer guidance from SARS, is a root cause for mounting confusion and frustration. The absence of any structured timeline for the processing of these applications also exacerbates the situation, as they are simply ignored with impunity, leaving taxpayers in limbo for extended periods, often in perpetuity.