How does taxation work in these circumstances?

[neoprema]

Can someone in the know explain to me how taxation works in these 2 circumstances;

1. a Person earns R1m in South Africa and pays tax on it. They then invest the balance in another country. Would they be considered tax-liable in that country too?
2. Same as above, BUT the person is also a citizen of the other country. I know there's double-taxation laws but i'm not sure if they apply to individuals or only companies? If I've paid 40% tax in SA on an amount, and I invest the balance in a country I'm also a citizen of with a 20% tax rate - would they consider me has having already paid tax so i'm not double-taxed?

 

[DapperDanMan]

That depends primarily on the legal status of the person pertaining to those particular countries, as well as a number of other smaller factors.

 

[deweyzeph]

Can someone in the know explain to me how taxation works in these 2 circumstances;

1. a Person earns R1m in South Africa and pays tax on it. They then invest the balance in another country. Would they be considered tax-liable in that country too?
2. Same as above, BUT the person is also a citizen of the other country. I know there's double-taxation laws but i'm not sure if they apply to individuals or only companies? If I've paid 40% tax in SA on an amount, and I invest the balance in a country I'm also a citizen of with a 20% tax rate - would they consider me has having already paid tax so i'm not double-taxed?

Firstly, your citizenship has nothing to do with whether or not you are a tax resident of a country (with the glaring exception of the USA). Most countries have a residence-based system of taxation which is based on how long you have lived there, days physically spent there, etc.

To answer your questions:

1) Assuming the person is a South African tax resident, and not a tax resident of the other country, then the amount they invest in the foreign country is not itself taxable, however any interest and/or dividends you earn from that capital will be taxable in South Africa as income and will have to be declared on your tax return. Note, the actual capital you transfered IS NOT taxable, as it is not income. It is savings that comes from income that has already been taxed.

2) As above, the citizenship of the person is irrelevant. You need to determine whether or not the person is considered a tax resident (not a citizen) of the other country.

 

[Dairyfarmer]

They then invest the balance in another country. Would they be considered tax-liable in that country too?

Depends on whether it's a tax haven or not. Bermuda, British Virgin Islands, Cayman Islands, Channel Islands, Singapore, ...... That is where many global equity funds are based.

 

[neoprema]

Firstly, your citizenship has nothing to do with whether or not you are a tax resident of a country (with the glaring exception of the USA). Most countries have a residence-based system of taxation which is based on how long you have lived there, days physically spent there, etc.

To answer your questions:

1) Assuming the person is a South African tax resident, and not a tax resident of the other country, then the amount they invest in the foreign country is not itself taxable, however any interest and/or dividends you earn from that capital will be taxable in South Africa as income and will have to be declared on your tax return. Note, the actual capital you transfered IS NOT taxable, as it is not income. It is savings that comes from income that has already been taxed.

2) As above, the citizenship of the person is irrelevant. You need to determine whether or not the person is considered a tax resident (not a citizen) of the other country.

Thanks. Did not think about the fact that you may be a citizen of a country not necessarily tax liable as a tax resident.

 

[deweyzeph]

Thanks. Did not think about the fact that you may be a citizen of a country not necessarily tax liable as a tax resident.

Yes, a lot of people get this confused. A British citizen can be a tax resident of SA, but not a tax resident of the UK, and likewise an SA citizen can be a tax resident of the UK but not a tax resident of SA. Your citizenship MAY play a role in trying to cease your tax residency, e.g. with SARS it is much easier to cease your SA tax residency if you can show them you are a citizen (or a dual citizen) of another country. But in and of itself just because person X is a citizen of country Y does not automatically mean they are a tax resident of country Y.