Expat Tax Matters: how does the “physical presence” test work?

Tax residency in South Africa can be a complicated thing. You don’t have to live in South Africa to qualify as a tax resident, and South Africans living and working abroad have had to come to grips with their tax status since tax law amendments made their foreign employment income taxable in March 2021. Tax residence is established by the South African Revenue Service (SARS) by means of two tests – the ordinarily resident test, and the physical presence test. The ordinarily resident test assesses taxpayer intention to be (or not to be) ordinarily resident in South Africa, while the physical presence test examines the time a taxpayer spends with feet on  South African soil – stand still for long enough and SARS will tax you. So what does the physical presence test require and when is it used? Let’s take a look.

“Physical presence” test

The physical presence test: it’s the test of time

This concept as laid out by SARS is time-based and this test is only applied where a  natural person was found to be not ordinarily resident during a specific tax period. This test examines the number of days for which a person is physically present in South Africa.

• It is important to note that a day includes a portion thereof, which means that  both the day of arrival and departure are included in the calendar count.
• A day starts at 00:00, therefore, a person who arrives in South Africa at 23:55 would be regarded to be present in South Africa for a full day.
• However, any day on which a person is in transit through South Africa or between two places outside South Africa is excluded where that person does not formally enter the country.

The physical presence test isn’t a once-off thing

The physical presence test must be performed every year in order to determine whether the individual qualifies as a resident for the tax year under consideration.

The test consists of three requirements all of which must be met. The person must be physically present in South Africa for a period or periods longer than:

• 91 days in total during the tax year under consideration;
• 91 days in total during each of the five previous tax years; and
• 915 days in total during these five previous tax years.

What is a tax year? A tax year starts on the first day of March in one year and ends on the last day of February of the subsequent year.

Under the physical presence test, a person who does not count as ordinarily resident in South Africa only becomes a resident for income tax purposes as from the first day (beginning) of the sixth tax year if he or she is physically present in South Africa for the periods as set out above. Failure to meet any of the requirements means that the outcome of physical presence test points toward the individual being a tax non-resident.

What is meant by “presence”?

The purpose for which the individual is present in South Africa does not matter.  Thus a day counts, even if it’s spent asleep in bed, or on holiday or attending a funeral.

• Any person who is a resident by application of the physical presence test, will cease their residency if they remain physically outside South Africa for an uninterrupted period of at least 330 full days. This continuous period begins the day after he/she physically leaves South Africa.
• Any natural person who is considered the exclusive tax resident of another country that is in agreement with South Africa in order to avoid double taxation is excluded from the definition of “resident”.

FinGlobal: tax emigration specialists for South Africans

If clock watching and calendar counting isn’t your thing, FinGlobal can help you verify your tax residency status with the South African Revenue Service. We can also help you ensure your tax obligations have been met, that you’re fully compliant with the tax authority and that there are no nasty tax penalties waiting to surprise you. Hand it to us, and consider it sorted.  Leave us your contact details and we’ll be in touch to discuss how we can simplify your tax situation.