Pretoria: South African Finance Minister Nhlanhla Nene and U.S. Ambassador to South Africa Patrick H. Gaspard today signed an intergovernmental agreement to improve international tax compliance and implement the Foreign Account Tax Compliance Act. The agreement promotes fiscal transparency between the two nations and also highlights the growing international cooperation to end tax evasion around the world. A DBA ensures that a subject is not subject to unjustified taxation, both in South Africa and in the country concerned that is treated in a given DBA. It is therefore a defence of double taxation and defines different requirements that a taxpayer must meet in order to understand where that tax subject is as a taxable resident. A double taxation convention (DBA) is a legal concept between two countries that specifies where the tax obligation of individuals lies. A double taxation convention is intended to prevent a subject from being subject to disproportionate taxation, both in South Africa and in the country mentioned in a specific agreement. A DBA provides a legislative defence of double taxation and sets out many of the requirements that a person must meet to determine where he or she resides as a tax resident. If the person is considered a tax resident, he or she is required to pay certain types of taxes collected taking into account the relevant DBA, as well as updated legislation on the exemption from expat income tax. The amended South African tax law is now fully applicable from 1 March 2020. If you have international economic interests, your income may be taxed in South Africa and abroad, resulting in double taxation.
A widespread misunderstanding that we see among South African expatriates is that they think they are “automatically tax-exempt” simply because there is a double taxation agreement between the two countries. This is totally untrue, and there are several factors that need to be considered and objectively proven, and you are always required by law to file a tax return and “right” exemption with contract discharge. Double taxation conventions (“DBAs”) are internationally agreed legislation between South Africa and another country. South Africa has dozens of such agreements with different countries and the main objective of a DBA is to ensure that any country subject to the agreement knows what its tax rights are to taxpayers. In July 2012, the United States introduced the possibility for a country to conclude an intergovernmental agreement, which would reduce the need for financial institutions to enter into a direct agreement with the United States. The agreement on improving international tax compliance and implementing the Foreign Account Tax Compliance Act between the United States and South Africa is a reciprocal agreement that ensures that financial institutions in South Africa disclose information about the United States.