What’s the deal with South African citizenship, exchange control and tax residency now that the rules have changed?

If you haven’t already heard by now, formal emigration has been cancelled. Don’t panic, you don’t have to cancel any of your plans, this simply means that the concept of “emigration”, as recognised by the Financial Surveillance Department of the South African Reserve Bank (SARB) has been phased out and replaced by another process.

This is what you need to know about how things will work, moving forward.

Citizenship, exchange control and tax residency

South African citizenship: once a Saffa, always a Saffa

• A citizen is a legally-recognised national belonging to a certain state or commonwealth.
• In South Africa, citizenship comes either by birth, descent or naturalisation. Citizenship exists separately from tax and exchange control residency, which means that as a South African citizen, you do not need to live in South Africa to retain your citizenship status. South Africa also allows its citizens to hold dual citizenship.

Exchange control residency: comes into play when moving money across South African borders

• Tax residency and exchange control residency are not the same thing.
• South African exchange control regulations limit the amount of money and the circumstances under which you may transfer funds abroad.

Before the rules changed on 1 March 2021: Exchange control regulations differentiated between the following individuals, and applied different rules to the individual types.

• Resident: Someone who has taken up permanent residence in South Africa.
• Resident temporarily abroad: Someone who has left South Africa without the intention of finding permanent residence in another country. This includes residents living and working abroad but excludes residents who are abroad on holiday or business travel.
• Emigrant: A South African resident who has left South Africa to take up permanent residence in a country outside the Common Monetary Area (CMA) consisting of Lesotho, Namibia, South Africa and eSwatini.
• Non-resident: A person whose normal place of residence or domicile lies outside the CMA.

Before March 2021, it was possible for an individual/family to apply to the SARB for formal emigration, where they intended to take up permanent residence in another country. Once this process was completed, the individual/family would be allowed to take a set amount of money out of South Africa via an emigrant capital account.

After the rules changed on 1 March 2021: The concept of formal emigration for exchange control purposes has been phased out, along with the process of controlling an emigrant’s remaining assets via an emigrant capital account.

South African working overseas? You should consider declaring yourself a resident temporarily abroad

If you live outside of South Africa, and you intend to return at some point in the future and you did not formally emigrate before the rule change on 1 March 2021 or ceased South African tax residency, you will be regarded as a “resident temporarily abroad”.

South African residents temporarily abroad are allowed to receive pension and annuity payments directly into their foreign bank accounts, as well as any monetary gifts or loans from other South Africans. These payments are over and above the annual R1 million single discretionary allowance (SDA) and the R10 million foreign capital allowance (FCA) to which all South African residents are entitled.

South African tax residency: determines how much and where you’ll pay tax

As mentioned, the concept of tax residency is separate from exchange control residency and actual citizenship. As a result, it’s possible for an individual to be a South African tax resident without being a South African citizen or exchange control resident. It’s also possible to meet tax residency requirements in more than one country at the same time.

How to determine whether you are a South African tax resident: it’s a test

• You are a tax resident if you are “ordinarily resident” in South Africa: if it is the country to which you will return at the end of your wanderings because it’s where your roots lie.
• You could remain ordinarily resident for tax purposes even if you leave the country for a significant time period, as long as you intend to return to South Africa once you’re done seeing the world.
• Intention is subjective, and if you assert that you are no longer ordinarily resident in a country, all the surrounding facts and circumstances must verify your assertion.

SARS will look at the following factors in assessing your intentions:

• Where your business and personal interests lie, as well as your most permanent and fixed place of residence.
• Details about your personal life, like family and social relationships, schools, places of worship and social clubs.
• Your habitual residence, which is the place you stay most often.

For a complete list of the factors taken into account by South Africa’s tax authority in assessing your tax residency status – see SARS Interpretation Note 3 (Issue 2).

What happens if you are not ordinarily resident in SA? You can still qualify as a South African tax resident during a particular tax year if you have been inside the Republic for more than 91 days in that tax year, as well as each of the five previous tax years, in addition to a total that adds up to more than 915 days in the five years prior. This is what is known as the “physical presence” test and you can get more details by reading SARS Interpretation Note 4 (Issue 5).

Hold up. Tax residency in more than one country. That means paying tax twice?

Although you can only be ordinarily resident in one country at a time, you can be tax resident in two. However, most countries have double taxation agreements (DTAs), which are contracts entered into between authorities in two tax jurisdictions to avoid double taxation of the same amount earned by the same individual.

A DTA will help you clarify which tax authority is allowed to tax particular income, and which country must provide tax relief for the tax already paid in the other country. South Africa has DTAs with almost every foreign jurisdiction, but the rules that apply will vary from country to country. You can view a list on the SARS website.

When will you cease to be a South African tax resident?

You stop being a South African tax resident when you are no longer ordinarily resident in South Africa and you no longer meet the requirements of the physical presence test.

• If you intend to take up permanent residence in another country, you must notify SARS of this intention.
• You will also need to remain physically outside of South African borders for a continuous period of at least 330 full days in order to ensure that you cannot be found a resident based on the physical presence test.

You can notify SARS that your tax status has changed in two ways:

• When filing your personal income tax return, simply provide the appropriate answer when asked if you have “ceased to be a resident of South Africa during this year of assessment” and provide the matching date.
• Submitting the “Declaration: Cease to be a Tax Resident” form, available on the SARS website along with the supporting documents required by SARS.

What happens when you cease tax residency in South Africa?

• You are deemed to have disposed of all your assets (excluding South African fixed property and shares in South African companies that are property rich), which may result in a capital gains tax liability. This is often referred to as an “exit tax”.
• You are relieved of your tax burden in South Africa on your worldwide income, but if you have South African sourced income, you will still be taxed on this.

FinGlobal: cross-border tax and financial services experts

If managing tax compliance in two different jurisdictions gives you heart palpitations, you’ll be pleased to know that you can outsource this headache to FinGlobal. We have helped thousands of South Africans in over 105 countries across the world with various aspects of their cross-border financial portfolios, and we’re ready to offer you the same convenience and reliability.

We provide a full suite of global financial services aimed at:

• Moving your money safely where you want it to be
• In a cost-effective, time-efficient, tax-compliant manner.

Interested in hearing how FinGlobal can make tax compliance simple and hassle-free? Leave us your details and we’ll be in touch.