As a South African, even if you’re living and working overseas, you may still be considered a tax resident and liable to pay tax back home. This is because South Africa has a residence based system that means if you fall into the definition of ‘tax resident’, you’ll be expected to pay tax back home no matter where in the world your income is earned. Once you cease tax residency, you’ll be relieved of this expat tax burden but you’ll need to notify the South African Revenue Service (SARS) of your status change and be prepared for the Capital Gains Tax liability that may follow. Whether you’ve already emigrated here’s what you need to know about ceasing tax residency and when/how to notify SARS of your moves.
Expat tax and tax residency in South Africa: what’s the deal in 2022?
If expat tax applies to you, it is because you are a South African tax resident. If you are considered a tax resident you cannot terminate this South African tax residency status, but if you can show by means of the ordinary residence and the physical presence tests that you should not be considered a tax resident, then you will be eligible to terminate your tax residency with SARS. The first thing to do now, obviously, is establish whether or not you are a South African resident, for tax purposes.
Applying the ordinary residence test: Any individual who is ordinarily resident in the Republic during the year of assessment will meet the criteria and be expected to pay expat tax. If you fail this test, then you can still be found to be a tax resident if you meet all three requirements of the physical presence test.
Applying the physical presence test, if you do not meet the ordinarily resident test: if you have both feet on South African soil for no less than –
- 91 days in total during the year of assessment under consideration;
- 91 days in total during each of the five years before the year of assessment under consideration; and
- 915 days in total during those five preceding years of assessment.
You will be considered a resident only if you meet all three of these requirements. Failure to meet one or more means that you do not qualify as a South African tax resident by means of the physical presence test.
Furthemore, even where you do meet any of these time-based requirements, as long as you remain outside of South Africa for a continuous period of at least 330 full consecutive days, you will no longer be considered a tax resident. This will apply from the day on which you physically left the Republic.
What are the consequences of ceasing tax residency in South Africa?
Yes, you’ll dispose of your obligation to pay expat tax in South Africa, but you’ll also be deemed to have disposed of all your worldwide assets, for capital gains tax purposes. Once you terminate tax residency, SARS makes their final tax swipe on your worldwide assets. This also means that if you have broken your tax residency as a result of no longer meeting the requirements for either the ordinary residence or physical presence tests, you’ll have triggered a capital gains tax liability to SARS. This becomes payable from the day on which you cease tax residency.
If your tax residency has terminated, you must notify SARS
Just because you’ve left South Africa behind, doesn’t mean the taxman has forgotten about you, or lost interest in you. If you have ceased to be a tax resident in South Africa, you must notify SARS. Luckily, it’s not necessary to do it in person or even by phone, you can do it when you file your final tax return. The eFiling wizard will ask whether you have “ceased to be a tax resident” and this is your chance to confirm and provide the effective date. If this seems too easy and you’d like to make it hard-copy official, you could even notify SARS that you’ve moved on (and they should too) when you apply for a tax clearance certificate on eFiling upon emigrating from South Africa.
What happens if you ceased tax residency some time ago without informing SARS?
If you find yourself having ceased to be a tax resident (which triggered a capital gains tax event) and you did not declare it to SARS at the time, there is still hope. Provision has been made through a Voluntary Disclosure Programme that lets you come clean to minimise potential penalties (up to 200%!) and avoid prosecution.
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