Paying Taxes as a Dual Citizen: Rules & Regulations

From 1 March 2001, South Africa moved from a source-based to a residence-based tax system for individuals.

This meant that tax residents would be subject to tax on worldwide income (excluding certain exemptions or exclusions) and non-residents would be subject to tax on income from a source within South Africa.

For example, if you have U.K and U.S citizenship, you will be required to pay double taxation. The U.S is one of two countries in the world that requires citizens to pay tax solely on the basis of citizenship, not location of residency.

Depending on where you live and how much you earn from the UK and the country taxed on it, you will be a double resident.

You can claim tax relief under a double tax arrangement between UK taxpayers, unless there’s an agreement between the two nations that allows this.

Typically, a double tax arrangement is a contract between two nations. This way you don’t have to pay tax two or three times on one or more people.

Please consult your specific double tax agreement for the best possible tax benefit, and talk to an immigration specialist lawyer today.

Page Contents

• Dual citizens have to file double taxes
• Who is regarded as a non-resident?
• Income exemption
• Who qualifies as a dual citizen?
• How do Double Taxation Treaties impact non-UK residents with UK earnings?
• Tax treaties explained
• What are the disadvantages of having dual citizenship?
• How can IAS help?

You may still need to pay expat taxes for citizens living abroad for your other country or countries involved.

It is not advisable to avoid double taxation, however there may be some relief from overpayment available while you are tax filing your tax bill.

The double taxation agreement entered into force on 17 December 2002. It is effective in South Africa from 1 January 2003 and in the UK from:

• 1 April 2003 for Corporation Tax
• 6 April 2003 for Income Tax and Capital Gains Tax

Types of income that could be taxed:

• Pension and annuities
• Interest
• Dividends
• Royalties
• Rental income
• Tax on foreign entertainers and sportspersons
• Capital Gains Tax (CGT)
• Estate Duty

Firstly, the definition of the word resident in this scenario is crucial.

Under South African law 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 ordinarily resident defined in terms of South African common law.

Any individual who is ordinarily resident (common law concept) in South Africa during the year of assessment or, failing which, meets all three requirements of the physical presence test, will be regarded as a resident for tax purposes.

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.

The Taxation Laws Amendment Act, 2020 relaxed the days requirement to qualify for the foreign employment income exemption.

In terms of the current provisions, individuals who spent more than 183 days in aggregate and a continuous 60 days working outside South Africa would have qualified for exemption in respect of their remuneration.

The following amounts fall with the scope of the exemption:

• salary
• taxable benefits
• leave pay
• wage
• overtime pay
• bonus
• gratuity
• commission
• fee
• emolument
• allowance (including travel allowances, advances and reimbursements
• amounts derived from broad-based employee share plans
• amounts received in respect of a share vesting

Generally, you must pay tax on your worldwide income, regardless of whether you have single or duel citizenship or if you’re only a tax resident in a certain country. It is therefore crucial to determine the eligibility for being considered dual citizens.

Many countries have a tax treaty with various countries in order to relieve UK citizens living abroad of paying double tax. Both the UK, and South Africa have tax treaties with other countries.

Double taxation overrides domestic law in certain countries. For example, if you are non-resident (from South Africa, say) in the UK and you have UK bank interest, this income would be taxable in the UK as UK-sourced income under domestic law.

However, if you are resident in France, the UK-France double tax agreement states that the interest should only be taxable in France.

This means that the UK must give up its right to tax that income. In this situation, you would make a claim to HMRC to exempt the income from UK tax.

Dual citizenship comes with several advantages including better freedom on the road, health and education benefits, and better work in the countries you hold citizenship in.

These rewards also carry tax benefits which can impact your investments, income and property taxes.

Double taxation treaties are agreements between 2 countries which are designed to protect against the risk of double taxation where the same income is taxable in 2 countries.

South Africa has income tax treaties with a number of foreign countries.

Under these treaties, residents (not necessarily citizens) of foreign countries may be eligible to be taxed at a reduced rate or exempt from income taxes on certain items of income they receive from sources within South Africa.

South Africa has concluded over 73 tax treaties in total:

• 21 with African countries
• 29 European countries
• 13 with Asian and Pacific countries
• 4 with North and South America
• 5 with the Middle East

Five advantages for dual citizens who cannot access the support from their home country. Both people are subject to tax laws and regulations of their respective country unless a tax treaty is in place, such as:

• Complex citizenship procedure
• Double taxation and income tax obligations, such as tax on investment income
• Citizen obligations in 2 countries (voting, serving in the military, etc.)
• Research the double taxation agreements between countries, especially if you are hoping to gain citizenship for one or more of them.
• Capital gains tax