This guide provides general guidelines dealing with –

• Foreign income received by or accrued to an individual (natural person) who is a South African resident (resident);

• Income received by or accrued to an individual, who is not a South African resident (non-resident), from a source within South Africa; and

• The treatment of capital gains in the hands of a resident or a non-resident.

Previously, the income tax system in the Republic of South Africa (South Africa) was generally source-based, and apart from a few exceptions, residency was not a criterion in determining taxable income. However, from the 1998 year of assessment (tax year), the worldwide income from investments of a natural person who is a resident became subject to normal tax. With effect from tax years commencing on or after 1 March 2001, South Africa moved from a source-based system of taxation to a residence basis of taxation in respect of which all income, subject to certain exclusions, is subject to normal tax. The effect is that all worldwide income of a natural person who is a resident is subject to normal tax.

In principle, the first step in determining the normal tax liability of any natural person in South Africa is to establish whether or not that natural person is a “resident”  Two separate tests are applicable to determine whether or not a natural person is a resident, namely –

• The ordinarily resident test; and

• The physical presence test.

Ordinarily resident test

This concept means that a natural person is a resident if his or her permanent home, to which he or she will normally return, is in South Africa. A continuous physical presence is not a prerequisite to be ordinarily resident in South Africa.

A natural person, who becomes ordinarily resident in South Africa, will become a resident as from a specific date. It, therefore, follows that any income that is received by or accrued to that person from a source outside South Africa, before he or she becomes ordinarily resident in South Africa, will not be subject to tax in South Africa unless such person is regarded as a resident by virtue of the physical presence test.

The physical presence test must be performed annually in order to determine whether the natural person concerned is a resident for the tax year under consideration. The test consists of three requirements, that is, the natural person must be physically present in South Africa for a period or periods exceeding – 2

i) 91 days in aggregate during the tax year under consideration;

ii) 91 days in aggregate during each of the five tax years preceding the tax year under consideration; and

iii) 915 days in aggregate during the above five preceding tax years.

Mwendabai Kalaluka -

(0735557775/ This email address is being protected from spambots. You need JavaScript enabled to view it.)