So what happens to you on the date that you cease to be a South African tax resident? What does it mean to cease tax residency in South Africa? Do you have to stop supporting the Springboks? Do you have to give back your South African passport? Is your citizenship affected? Exiting the South African tax system isn’t as final as it sounds. All it means is that the South African Revenue Service changes the way they view you, for income tax purposes. Your citizenship is not affected, nor are your sporting affiliations, and you’re still welcome back to SA to braai anytime you like, even permanently.
How to become a non tax resident of South Africa?
Let’s back it up a step. Why would you need to know if you’re a South African tax resident if you’re living and working abroad? A little thing called expat tax. Thanks to legislative amendments, the South African Revenue Service can now look to South African tax residents living and working abroad in order to collect tax on their foreign income, something which was not previously possible. This is because South Africa has a residence-based tax system in terms of which you can still be considered resident, even if you’re out of the country. That’s why you’ll want to ascertain whether or not you’re a tax resident, in order to determine whether you’re liable to pay expat tax back home in South Africa. People who are residents of South Africa are taxed on their worldwide income, subject to a few exclusions, in South Africa. Non-residents are taxed only on their income from a source within South Africa.
Are you a South African resident for tax purposes?
The Income Tax Act tells us what a resident is, for tax purposes. It must be pointed out that the requirements for tax residency are not necessarily the same as a resident for emigration purposes, although it’s easy to get confused.
Generally speaking, you will be considered a South African tax resident and taxed accordingly if you meet one of the two tests laid out in the Act.
You are a South African tax resident if you meet one of two tests
- The ordinarily resident test or (failing this test)
- the physical presence test and
- you aren’t found to be exclusively a resident of another country for the purposes of the application of any tax treaty.
The ordinary residence test is conducted first to determine residency. The physical test is only ever used where you fail the ordinary residence test. However, even if you meet the requirements of both tests and you are theoretically a tax resident, you could still avoid expat tax where you are working in a country that has a Double Tax Agreement with South Africa.
Read more about the application of the ordinarily resident and physically present tests in determining tax residency here.
Learn how to become a non-resident for tax purposes in South Africa, here.
What are the implications of becoming a non-resident for tax purposes?
Let’s take a look at what does (and doesn’t) happen when you cease to be a South African tax resident.
- You do not cease to be a South African citizen, you do not have to give up your passport, either. Once a South African, always a South African.
- You will, however, need to inform SARS if your residency status has changed. More on terminating your tax residency with SARS, here.
- You will not be expected to pay expat tax on your worldwide income in South Africa, but you will be deemed to have made a disposal of your global assets for capital gains tax purposes once you have ceased to be a South African tax resident.
Capital Gains Tax on emigration from South Africa
Sure, you’ll escape expat tax if you break up with SARS by becoming a non-resident for tax purposes, but you’ll find it tough to escape the taxman’s clutches. Intended to cash in on you cashing out of the country, once your tax emigration is approved, it triggers a capital gains liability to SARS. Once your status changes from resident to non-resident, SARS assumes that you sold off all your worldwide assets the day before your status changed, and they’ll expect to tax you one last time before you leave.
Read more about what to expect in terms of Capital Gains Tax when you become a tax non-resident, here.
FinGlobal: Tax specialists for South African expats
If you’re confused about whether or not you’ve ceased your South African tax residency, or you’re unclear about whether you need to pay expat tax in South Africa, we can help.
We’ll guide you every step of the way, if you’re interested in completing your tax emigration from South Africa. We also provide expert advice on all matters related to expat tax and can help you get squared with SARS if you need tax clearance, or you’re due a tax refund. In addition to eliminating all your tax-related headaches and worries, we’re also ready to offer you a full suite of cross-border financial services, such as:
- Financial emigration from South Africa
- Cashing in your retirement annuity early
- Making international currency transfers
- Dealing with tricky foreign exchange matters
- Pension income fund transfers
- Withdrawing your pension, provident or preservation funds
Leave us your contact details so we can get started with your free, no-obligation (100% private and confidential!) SARS assessment to determine your tax resident status.