Paying tax on a side hustle and for global citizens in South Africa

Yes, freelancers in South Africa must pay tax on their income. If you earn above the tax threshold, you're required to register as a provisional taxpayer. This means paying tax twice a year based on your estimated income, with a final payment due after filing your tax return.

Understanding tax residency

If you are living and working in South Africa and are considered a tax resident, you are required to declare your worldwide earnings to the South African Revenue Service (SARS).

Current tax thresholds:

• R95,000 for individuals under 65
• R148,000 for individuals over 65

Income from side hustles in South Africa is fully taxable. It’s important to note that your total income, including freelance and salary income, is subject to tax. Freelancers do not inherently pay more tax than salaried workers, but the added freelance income can move you into a higher tax bracket.

Provisional tax registration

Unlike salaried employees, freelancers may not have tax deducted from their earnings. Therefore, registering as a provisional taxpayer is essential. This involves:

1. Paying tax twice a year using an IRP6 form
2. Filing an annual ITR12, similar to regular salaried employees

To calculate your tax, first, add your side hustle income to your other earnings. Apply the tax rates to your total taxable income to determine how much tax you'll owe. Keep in mind that you can deduct allowable expenses related to your side hustle, which may lower your overall taxable income.

Remember that you will need these documents to file your tax return:

• IRP6 forms: For provisional tax payments
• ITR12 form: Your annual income tax return
• Income records: Proof of earnings from your side business
• Expense records: Receipts for any business-related costs to claim deductions.

Freelancers often make mistakes that can lead to issues with SARS. Here are some tips to help you stay on track:

• Get organised: Keeping meticulous records of your income and expenses will help make filing and claiming easier
• Separate your expenses: Maintain accurate logs to distinguish between business and personal expenses
• Know what you can and cannot claim for: Be meticulous when claiming expenses; legitimate deductions can significantly reduce your tax bill
• Know the deadlines: Familiarise yourself with tax deadlines to avoid penalties and interest incurred for missed or late filing.

For more information on tax deductions, check out more ways to save on tax.

A global citizen is someone who sees themselves as part of the world community, often crossing borders through travel or remote work. This includes South Africans living abroad, dual citizens and digital nomads. They face unique tax challenges as they manage obligations in South Africa and their country of residence.

When it comes to taxes, South African global citizens must understand their residency status, as it affects their tax obligations. South Africa has two main tests to determine tax residency: the ordinarily resident test and the physical presence test. If you are deemed a tax resident, you must pay tax on your worldwide income, even if you live abroad or work remotely as a digital nomad.

Fortunately, South Africa has double taxation agreements (DTAs) with various countries to avoid taxing the same income twice. If you qualify as a non-resident, you will only be taxed on income earned within South Africa.

A double taxation agreement (DTA) is a treaty between two countries that ensures workers won’t be taxed twice on the same income. It clarifies your tax responsibilities when working and earning money abroad, making it easier for you to work internationally without worrying about being overtaxed.

If you are considering working abroad, your tax residency may hinge on your permanent home. South Africa has DTAs with numerous countries, which can influence how your income is taxed.

To avoid double taxation on foreign income, ensure you're aware of any double taxation agreements between South Africa and the country where you earn income. Keep detailed records of your earnings and taxes paid abroad and consult a tax professional to optimise your tax strategy and claim any applicable credits.

If you’re working in one of these countries, you won’t have to worry about being taxed twice on the same income. Instead, you’ll pay taxes either in that country or in South Africa, depending on the agreement in place. This helps lighten your tax load and ensures you’re not facing unfair taxes while living abroad.

If you’re working in a country that doesn’t have a DTA with South Africa, managing your tax obligations can be tricky.

Here’s what you can do to navigate this situation:

• Learn the local tax laws: Get to know the tax rules in your host country, including rates and filing requirements.
• Declare your income in South Africa: As a South African tax resident, you need to report your worldwide income, including what you earn abroad.
• Keep good records: Track your foreign income and any taxes you pay locally. This can help with your South African tax return.
• Look for tax credits: Check if you can claim any foreign tax credits in South Africa. While it might not cover everything, it could ease your tax burden.
• Consult a tax professional: Consider speaking with a tax expert familiar with expat issues to help you sort through your unique situation.
• Prepare for double taxation: Without a DTA, you might face taxes in both countries. Plan ahead to manage your finances accordingly.

Navigating tax obligations as a freelancer or global citizen can be daunting, but understanding your responsibilities is crucial. By staying organised, knowing your rights and seeking professional advice when needed, you can ensure compliance and optimise your financial situation.