MEMORANDUM OF OPINION: TAX RESIDENCY BETWEEN SA AND FRANCE FOR A PROFESSIONAL RUGBY PLAYER
We herewith provide you with our Memorandum of Opinion with regards to a South African citizen working abroad and the dual tax residency test in South Africa and France.
Mr. x moved to France in June 2019 on permanent employment. Mr. x will keep his residential property in the RSA while he will earn income from employment as a professional rugby player “athlete” in France. He has no intention or motive to move permanently to France.
The foreign income tax amendment in terms of Section 11(o) of the Income Tax Act of South Africa will come into effect in March 2020. In general, the rule states that any income from foreign employment above the set threshold of R1 million will become subject to tax for South African tax residents.
A South African taxpayer has always been taxed on his or her world-wide income which means that foreign income must be declared, although the foreign income was tax exempt in the past. It is only once a tax non-resident, that this obligation falls away and all the taxpayer needs to do is to annually ensure he remains tax resident in a treaty country.
RESIDENT AND NON-RESIDENT TAXPAYER TEST
Residence for income tax purposes generally has no bearing on an individual’s immigration status.
Under domestic law, an individual is considered to be domiciled in France if at least one of the following criteria below is met:
- The habitual abode of the person or family is in France or France is the principal place of sojourn.
- Professional activities are carried out in France.
- France is the centre of economic interests.
- France is your main place of residence or home – if your spouse and children live in France and you work abroad, you may still be considered a French tax resident.
- You are resident in France for more than 183 days in a calendar year – not necessarily consecutively.
- Your main occupation is in France.
- Your most substantial assets are in France.
Under most bilateral tax treaties concluded with France, tax domicile is first determined under the law of the country that asserts the power to tax. If the individual is considered to be resident under the laws of two countries, the treaty provides ‘tie-breaker’ provisions to determine the country of residence. These tie-breaker tests generally include as criteria, in descending order, permanent home, personal and economic relations (centre of vital interests), habitual abode, nationality, and, if none of the foregoing tests is determinative, the decision of the competent authorities.
There are different types of residents, for example a resident defined by the Income Tax Act, 1962 in terms of the so-called “physical presence test” and an ordinary resident defined in terms of South African common law.
- Ordinary Resident
- Common law test, your normal abode or if one plan to return after some time and consider this country their “real home”.
- Physical Presence
- Those who meet the physical presence test in terms of the number of days spent in SA over a period shall also be considered a tax resident.
To meet the requirements of the physical presence test, that individual must be physically present in South Africa for a period or periods exceeding –
- 91 days in total during the year of assessment under consideration;
- 91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and
- 915 days in total during those five preceding years of assessment.
An individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present.
If the individual is neither ordinarily resident, nor meets the requirements of the physical presence test, that individual will be regarded as a non-resident for tax purposes.
The Double Taxation Agreements (DTAs) of South Africa with other countries contains a relief should one find oneself in a situation where they are to be a dual tax resident.
Taxpayers who are non-residents will be taxed only on income accrued by them in South Africa.
Should you decide to apply for financial emigration through the SARB and SARS, you will need to pay an additional tax, an “exit” tax. This would also apply should you wish to declare your emigration status as a non-resident for tax reasons through SARS only.
A deemed disposal takes place and consequently, Capital Gains Tax, the “Exit tax”, will be payable on all assets except for immovable property in South Africa even if you are not really disposing (selling) your assets on date of emigration.
When formal emigration should be considered:
- Foreign capital allowance is needed.
- Quoted and/or unquoted securities to be exported as part of or in lieu of the applicable foreign capital allowance based on the market value thereof at the time of availing of the applicable allowance. The relevant securities must, of course, be endorsed ‘non-resident’ by the Authorised Dealer concerned.
- South African insurance companies may be requested to transfer life policies (excluding single- premium policies) from a register in South Africa to a register in any country outside the CMA.
It is advised to keep your SA Will up to date and in order since a South African Executor will need to be appointed to dispose any immovable property left in SA.
Should you not proceed with Financial Emigration or proceed to declare the status change by pay the Capital Gains on emigration, then your Executor in South Africa will need to declare the CGT on date of death and Estate Duty.
DOUBLE TAXATION AGREEMENT (DTA)
The DTA between South Africa and France was signed and come into effect in 1995.
The following are articles applicable in the matter:
Dependent Personal Services
- Subject to the provisions of Articles 16, 18, and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
- Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
Artistes and Athletes
Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.
Notwithstanding means in spite of, despite, even if, without regard to or impediment by other things, all the same, however, in any case, in any event, nevertheless, none the less, still, yet.
Elimination of Double Taxation
In the case of South Africa, double taxation shall be avoided in the following manner: taxes paid by residents of South Africa in respect of income or capital taxable in France, in accordance with the provisions of the Convention, shall be deducted from the South African taxes due. Such deduction shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable to the income or capital which may be taxed in France.
The Double Taxation Agreement (DTA) will need to be scrutinized in your case since you are a tax resident in France and in South Africa in terms of the ordinary residence. Thus, you are a dual tax resident.
France will have the first right to tax your income due to its source of income in France and your tax residency.
In South Africa, Section 10(1)(o) shall apply meaning the income from the foreign employment will be subject to tax in South Africa.
The DTA’s article 23, for the avoidance of double taxation, allow the deductions of the tax paid in France when declaring your income in South Africa.
Your income will therefore NOT be double taxed.
Should your foreign income exceed the maximum threshold for individuals in South Africa, you will be taxed at 45% less the tax paid in France.
General application to know in France
Withholding tax (WHT) system
As of 1 January 2019, for French resident taxpayers, income taxes will be paid on a pay-as-you-earn (PAYE) basis. The scope of income subject to the new WHT system is very wide and covers most categories: employment income, pensions, replacement income, annuities, self-employment income (industrial and commercial, non-commercial, agricultural), and rental income.
Personal income tax rates
Each category of income is combined and, after deduction of allowances, is taxed at progressive rates. Total income is split according to family status (i.e. ‘the more children you have, the less tax you pay’).
Under income-splitting rules, total taxable income is divided by the number of shares awarded to the taxpayer: one share for a single person, two shares for a married taxpayer without children, half a share for each of the first two dependent children, and one full share for the third and each subsequent child. Thus, the income of a married taxpayer with three children is split into four.
French social security contributions
The French social security system is composed of various schemes providing a wide range of benefits. This system includes social security basic coverage (sickness, maternity, disability, death, work-related accident benefits, and old age state pension), unemployment benefits, compulsory complementary retirement plans, complementary death/disability coverage, and complementary health coverage.
The contributions are shared between employer and employee; on average the employer’s share of contributions represents 45% of the gross salary. For 2018, the employee’s share of French social contributions represents approximately 20% to 23% of the remuneration. However, since the contributions are assessed using various ceilings, the average rate will decrease as the gross salary increases.
Employers’ contributions made to additional medical coverage schemes (which are mandatory and collective) are taxable.
Generally, for any employee who carries out a salaried activity in France, the employer withholds the employer’s and employee’s share of French social security charges. However, France has entered into agreements with more than 40 countries whereby expatriates temporarily transferred to France may remain under the home country social security schemes and are exempt from French charges, provided they hold a valid certificate of coverage.
No inheritance tax is due for inheritance between spouses.
Personal allowances / Deductions
Total taxable income is divided into the number of shares (‘parts’) that reflects the taxpayer’s marital status and the number of dependants. Children under 18 years of age and disabled children of all ages can be claimed as dependants.
Individual – Sample personal income tax calculation
Taxable income (T) / Number of shares (N) Rate (%) Income tax (I)
Over (EUR) Not over (EUR)
0 9,807 0 0
9,807 27,086 14 (0.14 x T) – (EUR 1,372.98 x N)
27,086 72,617 30 (0.30 x T) – (EUR 5,706.74 x N)
72,617 153,783 41 (0.41 x T) – (EUR 13,694.61 x N)
153,783 45 (0.45 x T) – (EUR 19,845.93 x N)
T = EUR 44,500; N = 2 (married taxpayers)
T/N = EUR 22,250
I = (0.14 × EUR 44,500) – (EUR 1,372.98 x 2) = EUR 3,484
Godfried JJ Kotze, MCom Taxation
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