With so many individuals and families emigrating or planning to emigrate from South Africa, it’s important to have a solid understanding of all the implications of an international relocation, including the implications of tax emigration. Since changes were made to the Taxation Laws Amendment Act (TLAA) that brought South Africans working abroad back into the tax net to pay expat tax, it’s critical that individuals know how to stay on the right side of the South African Revenue Service until they meet the criteria to cease tax residency in South Africa and cut tax ties with their home country.

Emigration and taxes

Tax residence: basis of taxation in South Africa

When it comes to deciding who must pay income tax, South Africa has a residence-based tax system, in terms of which South African tax residents are expected to declare and pay tax on their worldwide income (subject to certain exemptions) and worldwide capital gains. Conversely, a non-resident is only expected to pay tax in South Africa on income derived from a local source and capital gains arising from the disposal of immovable property or any interest or right to immovable property in South Africa.

Who is a tax resident in South Africa?

The South African Revenue Service (SARS) has developed a framework of inquiry into the factual and subjective circumstances that support your tax residency status.

• 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.

What happens when you relocate overseas?

For the first year that you are overseas, you will be considered a South African tax resident Until you no longer meet the requirements of ordinary residence or physical presence, you will be expected to pay expat tax in South Africa on your foreign employment income, but you are able to claim tax exemption on R1.25 million of your earnings if you meet all the requirements.

You will no longer meet the requirements of the physical presence test once 330 uninterrupted days have passed since you left South Africa, without returning. At this point you are considered to have broken your tax residency on the day that you left South Africa permanently, and you will be required to inform SARS of this, in order to have your status changed from resident to non-resident for tax purposes.

How do you notify SARS that you have ceased to be a tax resident?

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

• When filing your personal income tax return, simply answer in the affirmative when questioned if you have “ceased to be a resident of South Africa during this year of assessment” and then supply the corresponding date. This will trigger a manual intervention from SARS and you will be requested to supply your supporting documentation.
• You can complete and submit 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 to be a tax resident in South Africa?

• You terminate your obligation to pay tax on your worldwide earnings, although you will be obligated to pay tax on locally sourced income.
• SARS treats you as if you sold all your worldwide assets (to your foreign self) the day before you ceased tax residence, at market value, triggering a Capital Gains Tax (CGT) liability.
• This CGT is added to your bill for that tax season, which can push you into a higher tax bracket for this tax period which can be a shock if you’re not expecting it.
• This CGT is referred to as an exit tax, and it is immediately payable to SARS.

• Keep in mind, it is entirely your responsibility to notify SARS once your status changes. You must do this in the same tax period in which the change takes place.
• Until you notify SARS, the tax authority is within its rights to assume that you are still tax resident and rack up tax charges accordingly.
• If there is an exit tax that becomes payable upon changing your tax status, SARS has the authority to add administrative penalties for non-declaration and non-payment to your tax bill. Such penalties can go up to 200% depending on the circumstances.

FinGlobal: simplifying tax headaches for South Africans all over the globe

Navigating the complexity of tax compliance after your international move can be stressful. We can help you ascertain your tax status in South Africa, and ensure that you are up-to-date and fully compliant with your obligations to SARS. Leave us your details and we’ll be in touch to start your 100% confidential, free tax status assessment.