Returning to South Africa from Dubai? What you need to know about your tax and investments

Coming back to South Africa after living in Dubai can have tax implications that you may not have had to consider while you were there. You'll be moving from a country with no personal income tax to South Africa's residence-based tax system.

Your offshore investments, property, retirement benefits and business interests may all be treated differently once you become South African tax resident again.

The best time to review your finances is before you return, while you still have more options available.

Confirm whether you ceased South African tax residence

Living in Dubai does not automatically mean that you stopped being South African tax resident.

South African tax residence is determined through two tests:

• The ordinarily resident test: Whether South Africa remained your real or usual home, and the country you would naturally return to.
• The physical presence test: The number of days you spent in South Africa over the relevant tax years.

A UAE residence visa or Emirates ID does not, by itself, prove that you ceased South African tax residence.

South African tax residents are generally taxed on their worldwide income, while non-residents are normally taxed only on income from a South African source.

If you formally ceased South African tax residence when you moved to Dubai, check that SARS has the correct date on record, any applicable exit tax has been dealt with, and you have kept evidence to support your position.

Establish when South African tax residence will resume

If you return to South Africa intending to make it your permanent home, you may become ordinarily resident from the date of your return. You do not necessarily need to wait until you satisfy a day-count test.

SARS will look at your intentions, where you have a home, your family ties and your employment arrangements.

Once you become South African tax resident again, your worldwide income and gains may be taxable here. This may include:

• Employment or consulting income from a UAE or international employer.
• Interest earned on UAE and offshore bank accounts.
• Dividends and distributions from foreign investments.
• Offshore rental income.
• Gains from foreign investment portfolios.
• Income or benefits from foreign companies and trusts.

Money held in a Dubai bank account or offshore investment may still be subject to South African tax.

Where residence is uncertain or overlaps, the South Africa-UAE Double Taxation Agreement may also need to be considered.

Keep evidence of your UAE tax residence

Before leaving Dubai, gather evidence of your UAE residence and employment history, including:

• Passports and travel records
• UAE residence visas and Emirates IDs
• Employment contracts and final payslips
• Tenancy or property records
• UAE bank and investment statements
• A UAE Tax Residency Certificate, where appropriate
• Documentation of your final salary and end-of-service gratuity

You can apply to the UAE Federal Tax Authority for a Tax Residency Certificate if you meet the requirements. This may help support a claim under a tax treaty or serve as evidence of your UAE residence for other tax purposes.

Value your offshore assets before returning

When you become South African tax resident, special Capital Gains Tax rules can affect the base cost of certain assets you already own. Depending on the asset and the applicable rules, its market value when residence resumes can become important when calculating a later South African capital gain.

This can be relevant to offshore investment portfolios, shares, foreign property and interests in private companies.

Arrange reliable valuations as close as possible to your return date and keep copies of your portfolio statements, property and share valuations, purchase documents and records of any contributions or withdrawals.

Review your Dubai and offshore investments

An investment that works well while you live in Dubai may become less suitable once you return to South Africa. Your return is also a good opportunity to review your wider cross-border wealth planning and check that your investments and financial arrangements remain suitable.

For each investment, consider:

• Will the provider continue to service you in South Africa?
• How will income and gains be taxed after you return?
• Does the provider supply suitable information for South African tax reporting?
• Does the investment still suit your income, currency and liquidity needs?
• Would restructuring trigger tax or surrender penalties?

Plan how much to bring back and when to transfer it

You are not generally required to transfer all your offshore savings to South Africa when you return.

Transferring previously accumulated capital to South Africa is not generally a taxable event in itself, although you should retain evidence of the source of the funds. Once South African tax residence resumes, income and gains from assets you continue to hold offshore may fall within the South African tax net.

You may want to keep some money offshore for overseas education, travel, investments or expenses in other currencies.

The UAE Dirham is pegged to the US Dollar, while the Rand can be considerably more volatile. Consider:

• How much capital you’ll need in South Africa immediately.
• Upcoming property, vehicle and moving costs.
• Whether transferring funds in stages would reduce timing risk.
• How much liquidity to retain offshore.
• The currencies in which your future expenses will arise.

Understand how your UAE employment income will be taxed

If you continue working for a UAE employer after returning to South Africa, your salary may become taxable here once you resume South African tax residence.

Several things will affect how your salary is taxed:

• Where you physically perform the work.
• Your tax residence at the time.
• Whether you travel internationally for employment.
• Whether the foreign employment income exemption applies.
• The employment provisions of the South Africa-UAE tax treaty.

The foreign employment income exemption has specific requirements and does not apply to all foreign salaries.

Also check how your final salary, outstanding bonuses, leave payments, share awards, and end-of-service gratuity will be taxed. The timing of these payments in relation to your return can affect the outcome.

Consider the tax position of your UAE company

If you own or manage a UAE company, moving back to South Africa could affect how both you and the business are taxed.

You should consider:

• Whether controlled foreign company rules apply.
• Where the company's effective management takes place.
• Whether operating it from South Africa creates South African tax exposure.
• How salary, dividends and shareholder loans will be treated.
• Whether the business could create a permanent establishment in South Africa.

This is worth looking at closely if you're the sole shareholder and plan to run the company from South Africa.

Having a Dubai trade licence or registered office does not automatically mean the company will be outside the South African tax system.

Check your pension and retirement arrangements

You may have accumulated several forms of retirement savings while living abroad, including:

• A UAE end-of-service gratuity
• Employer-sponsored savings
• Offshore retirement plans
• South African retirement annuities or preservation funds
• UK or other foreign pensions

Check when each benefit becomes payable, whether you'll receive it before or after becoming South African tax resident again, and which country has the right to tax it.

Confirm how your retirement providers will administer and pay your benefits once you're resident in South Africa.

Avoid withdrawing or transferring retirement savings simply because you are leaving Dubai. Consider the tax and investment implications first.

Update your estate plan and beneficiaries

Moving back to South Africa may affect how your estate is taxed and how your assets are passed on.

Once you are ordinarily resident, your worldwide estate may fall within the South African estate duty net. Estate duty is currently charged at 20% on the dutiable amount up to R30 million and 25% above R30 million.

Review your:

• South African and foreign wills
• Beneficiary nominations
• Offshore investments and bank accounts
• UAE property and business interests
• Trusts, foundations and life assurance

If you have a UAE or Dubai International Financial Centre will, check that it works alongside your South African will and covers the assets you intend it to.

Arrange medical aid and insurance early

If you currently rely on medical cover through your UAE employer, plan your South African cover before you return.

South African medical schemes may impose:

• A general waiting period of up to three months.
• A condition-specific waiting period of up to 12 months.
• Late-joiner penalties if you are over 35 and have insufficient previous membership of a South African medical scheme.

Late-joiner penalties can increase your monthly contributions and may remain in place for as long as you belong to the scheme.

Before your UAE employer benefits end, compare your medical aid options and check whether you need gap cover, life assurance, disability cover or income protection.

Also review any existing UAE policies. They may not provide the cover you need once you are living permanently in South Africa.

Practical steps before returning from Dubai

Start planning several months before you leave. You may need time to arrange valuations, check your tax residence and decide what to do with your investments.

Before returning:

1. Confirm when South African tax residence ceased and is likely to resume.
2. Review your SARS history and retain supporting UAE records.
3. Obtain valuations and review your offshore investments.
4. Review UAE business interests, employment payments and retirement benefits.
5. Plan your currency transfers.
6. Update your estate planning, insurance and medical aid.

Returning to South Africa from Dubai? Get your tax, investments and cross-border finances in order before you move with help from our tax and wealth specialists. Speak to our Wealth team on +44 (0) 20 7759 7519 in the UK or +27 (0) 21 657 154 in South Africa, or email [email protected].