The South African tax system differentiates between the taxable gross income of a resident and non-resident. A resident will be taxed on the total amount, in cash or otherwise, received by or accrued to or in favour of that resident. For any person who is not a resident, the taxable gross income is the total amount of income, in cash or otherwise, received by or accrued to or in favour of that person from a source within or deemed to be within South Africa during the year of assessment.
Who is a tax resident?
The definition of a resident refers to any natural person who is ordinarily resident in South Africa; or who is not at any time during the relevant year of assessment ordinarily resident in South Africa but was physically present in the Republic in that year and complied with all three of the requirements of the physical presence test.
Physical presence test
To meet the requirements of the physical presence test that person must be physically present in South Africa for a period or periods exceeding 91 days in aggregate during the year of assessment under consideration or 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration and 915 days in aggregate during those five preceding years of assessment.
A resident company (or other person other than a natural person) is defined as one which is incorporated, established or formed in South Africa or which has its place of effective management in South Africa, but does not include any person who is deemed to be exclusively a resident of another country for purposes of the application of any agreement entered into between the government of South Africa and that of the other country for the avoidance of double taxation.
Because a non-resident is only taxed on income sourced from South Africa, various source rules apply. Specific streams of income will either be truly of South African source or deemed to be from South African source. In essence income will be truly sourced from South Africa when it originates within the borders of South Africa. If this is not the case income can still be deemed to be sourced from South Africa if the criteria established in the Income Tax Act of South Africa applies. A tax practitioner should be able to advise whether these criteria are met.
If a non-resident earns income that is taxable within South Africa, they will be taxed on this by completing a tax return for the specific year of assessment. If some streams of income are earned, however, immediate tax is attracted in terms of a withholding tax. The income streams to which withholding taxes apply are: investment income, income derived from the sale of immovable property located within the borders of South Africa, royalties and income earned by non-resident entertainers and sport stars. In this case the resident who transacts with the non-resident person will have the obligation of withholding these taxes when the transactions take place.