US Expat Taxes for Americans Living in South Africa – What You Need to Know
It has been estimated that there are several thousand Americans living in South Africa.
Living in South Africa is an incredible experience for a number of reasons, including the cost of living, the friendly people, the economic stability, and the beaches, landscapes, and wildlife. As an American expatriate living in South Africa though, what exactly do you need to know regarding filing US expat (and South African) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in South Africa, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“South African residents are taxed on their worldwide income. Credit is granted in South Africa for foreign taxes paid. Non-residents are taxed on their South African sourced income. The same rates of tax are applicable to both residents and non-residents.”
If you pay income tax in South Africa, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a South African resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in South Africa. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and South African governments share taxpayer info, and South African banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/South African dual citizen, and you have been living in South Africa but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
South African taxes – what you need to know
South African residents are taxed on their world wide income on a scale from 18% to 45%. Foreigners living in South Africa are considered a resident if South Africa is the country where they have their most fixed and settled residence (storing possessions there etc). Otherwise, someone is considered a resident if they spend more than 91 days in South Africa in the tax year and the preceding five tax years.
South Africa also levies a transfer tax on property purchases ranging from 3% to 13%.
The South African tax year runs from March 1st until the last day of February. Tax returns are due by October 31st. The South African tax authority is called SARS (the South African Revenue Service).
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in South Africa that you contact a US expat tax specialist.