Hidden danger of under-declaring income: why expats may be more at risk without knowing it

“In terms of the Tax Administration Act, the accused is obliged to submit tax returns for assessment by a specific return date. The accused failed to submit 4 Personal Income Tax returns. Now, therefore, the accused is guilty on 4 counts of failure to submit a Personal Income Tax return.”

This is the criminal summons from the South African Revenue Service’s (Sars) you want to avoid at all costs, because the tax man has wide powers and discretion to impose administrative penalties or pursue criminal prosecution, depending on the gravity and intent of the contravention of the Tax Administration Act (TAA).

 South Africans living abroad should note that being outside the country offers no automatic protection for non-compliance. In fact, expatriates may be particularly vulnerable if the income they declare is not aligned with their tax residency status as per Sars’s records.

The expat trap: misunderstanding tax residency

 Many expats fall into non-compliance unknowingly due to misconceptions or being ill-informed about South Africa’s residency-based tax system.

Unless you have ceased tax residency through a structured cessation process, Sars still considers you a South African tax resident, legally required to declare your worldwide income – including foreign employment earnings, consulting fees, dividends & interest, rental income, or capital gains.

Expatriates who have not formally changed their status to that of non-resident taxpayers run the risk of under-declaring their income by only declaring South African-sourced income. Even when unintentional, it is classified as non-compliance and carries substantial financial and legal risks.

Penalties for non-compliance: it adds up quickly

 Failure to declare your full income according to your tax residency status can lead to:

• Penalties up to 150% of the unpaid tax
• Compounded interest charges that escalate over time
• Retrospective assessments and backdated audits
• Possible criminal charges for intentional tax evasion

Behaviour-based penalties

 Sars evaluates a taxpayer’s conduct to determine the level of penalty imposed. According to section 223 of the TAA, penalties for understatement, in a standard case, range from 10% to 150%:

Interest on unpaid taxes is also levied under Section 187 of the TAA and Section 89quat of the Income Tax Act, escalating liabilities over time.

Compliance is non-negotiable

 Section 234 of the TAA makes express provision for criminal offences arising from non-compliance with tax Acts. The rationale is to enforce taxpayer compliance and deter wilful or negligent conduct that could undermine the integrity of the tax system and the administration of revenue collection.

The inclusion of criminal sanctions within the TAA underscores the seriousness with which SARS and the legislature regard accurate reporting, timely disclosure, and voluntary compliance in tax administration.

Why expats are at high risk

South Africans living and working overseas face heightened exposure for several reasons:

• Misunderstanding of tax law: Many incorrectly assume that working abroad exempts them from declaring foreign earnings.
• Minimal declarations: Some declare only South African rental or bank interest, thinking it is sufficient.
• “Nil returns” trap:  A number of expats file returns showing unemployment, wrongly assuming Sars will ignore them.

These behaviours are risky because Sars has visibility into foreign income, and in many cases, already knows more than you think.

Sars’s global reach in tracking expats

The tax authority’s reach is not limited to domestic data. It receives financial and personal information through the Common Reporting Standard (CRS) and other international agreements. This includes data from foreign banks and financial institutions, property deeds offices, retirement fund administrators, and investment platforms.

Using advanced data analytics and machine learning, SARS cross-checks this information with declared tax returns to detect discrepancies.

Sars also has a Foreign Employment Income Unit, responsible for monitoring expatriates (particularly those earning above R1.25 million annually), ensuring they remain tax compliant, issuing Non-Resident Tax Status Confirmation Letters to those who have formally ceased residency, and leveraging international data-sharing mechanisms to verify foreign-earned income.

These tools mean Sars is proactively identifying non-compliant taxpayers.

The crucial step of ceasing tax residency

 Ceasing South African tax residency is essential for individuals who have relocated abroad. Without formally applying to Sars, you remain liable for tax on worldwide income and assets.

Once approved, non-resident status changes how your global income is taxed and helps prevent double taxation. Given Sars’ use of global data-sharing and AI audits, prompt compliance is vital, as the cost of inaction far exceeds any short-term benefit of avoiding disclosure.

* Mahlaba is the expatriate tax specialist, Mahundla is the Sars compliance specialist, and Bhayla is the tax attorney at Tax Consulting SA.

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