When you fill in your tax return you will be asked to state income from a
source outside South Africa.
This is in part 15.2 and 11 of your return. There are three main ways in
which you could derive income outside South Africa - by selling goods
(trading), providing a service (work) or by investment income.
You need to
ask yourself only four key questions to decide whether profit or income is
from a source outside the country:
* What activity or performance took place to generate the income? For
instance, you may have regularly worked in Angola on behalf of your
employer;
* Where was that activity or performance located? In our example it will be
Angola because you physically rendered a service there;
* Is there a section in the Tax Act which specifically renders that type of
income taxable regardless of whether the two points above indicate that the
source is outside South Africa - that is, is the income deemed to be from
South Africa; and
* Is there a double tax agreement with that specific country? If the amount
you earned in Angola, in our example, was taxed in that country, you will
not be double-taxed.
Doing business with a country that does not have a
double tax agreement with SA could be tax inefficient!
The South African tax system so far has been source based, ie you have been
taxed on the income that is derived (or deemed to have been derived) in
South Africa regardless where you stay because the Government applies its
resources to protect those resources that are giving you income.
The
definition of source has been very important so far.
From April next year, the tax system will change to a residence based which
means you will taxed on all income regardless of where it comes from, as
long as you are resident in South Africa.
The definition of resident is
going to be extremely important then.
One of the main reasons for the change is that now that South Africa
participates in international markets, many companies and citizens have
investments or activities abroad.
Those companies and people are located
here and all their income, wherever earned, will be taxable, though there
will be exemptions if your income was taxed in a foreign country with a
source-based tax system.