One of the aspects of emigration planning that many people often overlook is tax planning. This is understandable because there are so many more exciting things to focus on when you’re moving to a new country that it’s easy to file tax matters at the back of your brain. If you’re one of these people, go make yourself a cup of tea or coffee, come back and settle in for five minutes while we give you the rundown of ceasing your tax residency with the South African Revenue Service (SARS).
This five minutes we’re asking for now will be time well spent, and your future self will thank you for avoiding a nasty surprise in the next tax season.
What is a South African tax resident?
If you were wondering what determines tax residency in South Africa, it’s not the fact that you live there that is the deciding factor. A South African tax resident is an individual who meets the requirements of the ordinarily resident test or the physical presence test, which are used by SARS in determining tax residency.
Do I have to pay tax in South Africa if I live abroad?
The most important part of tax planning for any future expat is determining whether or not you’re liable to pay tax in South Africa once you live abroad. South Africa has a residence-based tax system which means that if you meet certain requirements, you could still be considered a South African tax resident even if you’re living abroad.
If you tick all the boxes for South African tax residence, you will be taxed on your foreign employment income by SARS, as well as any income you may still be earning back home, unless there is a Double Tax Agreement that applies, giving your new country the right to tax your income.
Even if there is no Double Tax Agreement, a South African tax resident may qualify to utilise the foreign income exemption if they meet all the conditions of the 183-day rule. In terms of section 10(1)(o)(ii) of the Income Tax Act, South African tax residents can ask SARS for permission to declare the first R1.25 million earned abroad as tax free.
What is the 183-day rule for tax residence in South Africa?
Being able to use the foreign income exemption available to tax residents depends on your ability to prove that you have spent more than 183 days in a 12-month period outside South Africa, of which 60 days must be continuous.
Breaking tax residency with South Africa
Why do you need to cease tax residency in South Africa? It’s the clearest way to ensure that your ties with SARS have been severed, and the tax authority has no claim to your foreign employment income.
How do you declare to SARS that you have ceased to be a tax resident in South Africa?
There’s a form for that. You can inform SARS to remove you from their contact list by using the Registration, Amendments And Verification Form (RAV01) on eFiling. This form is used to capture the date on which you ceased to be a tax resident, and submitting the RAV01 opens a case, which will trigger a request from SARS for you to submit the documents that verify your assertion that you have ceased to be a tax resident.
Read more: The new SARS procedure on how to become a tax non-resident of South Africa.
What is the point of SARS’ Declaration of Cease to be a Tax Resident?
It is essentially the means by which you will unsubscribe from being taxed in South Africa. By informing SARS of your change in tax residency, this sets the foundation for how SARS can tax you moving forward.
Please note, that ceasing tax residency can trigger a deemed capital gains tax event depending on the type of assets you held and where they were located at the time you broke tax residency with South Africa.
When must a declaration be made to SARS that you have broken tax residence with South Africa?
When you cease to be a tax resident, SARS must be informed immediately. Ceasing tax residency is not something that happens automatically, and as a South African tax resident it is your responsibility to inform the tax authority of your tax status change, and to request it be made official. Until you have formally ceased tax residence with SARS, they have the right to assume you are liable for tax on all of your income.
You must complete the Declaration Form and submit your supporting documents through eFiling or you can use the SARS Online Query Service upload tool.
- The signed declaration that sets out the basis of your assertion that you have ceased tax residency.
- A letter of motivation that explains the facts and circumstances in a manner that supports the declaration that you have ceased to be a tax resident.
- A copy of your passport/travel diary that indicates dates of exit/entry into a new country.
In addition to the this standard information, depending on the grounds for your assertion that you have broken tax residency with South Africa , you must also be able to supply on request from SARS:
Qualifying grounds 1: Cease to be ordinarily resident
SARS must be able to conclude you have ceased to be ordinarily resident in South Africa , and such a conclusion must be supported by furnishing –
- The type of visa on which you entered a foreign country.
- Proof that you have already obtained permanent residence in the foreign country (where applicable).
- A certificate/letter from the foreign revenue authority that verifies you are considered tax resident in that country (if available).
- You must also be able to supply SARS with details on:
- The location of your personal belongings.
- Any property remaining in South Africa, along with the purpose for which such property is used.
- Any remaining business interest (such as any investments or employment) that you may still have in South Africa.
- Any remaining family, including the reasons for which they stayed behind while you left.
- Any social interests still held in South Africa, such as your gym contract or membership to any recreational clubs, societies, religious affiliations.
- Any return visits to South Africa, how often these happened and why.
Qualifying grounds 2: Cease by failing the physical presence test
- Only the standard requirements need to be supplied.
Qualifying basis 3: Cease by application of Double Tax Agreement (DTA)
- A certificate of tax residence from the foreign revenue authority or a letter from the authority that indicates your status as a tax resident in that country.
When will a declaration that you have ceased tax residency be declined?
SARS will not approve your status change if –
- You do not meet the criteria for breaking tax residence with South Africa.
- You cannot provide the requested information to support your assertion that you have broken tax residence.
If you have already declared that you have ceased to be a tax resident, you can use this opportunity to request confirmation of your status change.
If you previously informed SARS that you have ceased to be a tax resident of South Africa, SARS is now issuing confirmation letters. You can request yours by way of a letter to Contact Us.
Your letter should explain –
- The background of your request (the fact that you want formal confirmation that SARS has acknowledged your tax status change)
- The basis on which you have ceased to be a tax resident; and
- The date and manner in which SARS has previously been informed.
FinGlobal: cross-border financial specialists for expats
Need someone to walk you through the SARS process of breaking tax residency with South Africa? FinGlobal is your top choice tax emigration partner. We will assist you every step of the way as you exit the South African tax system, and help you to cash in your retirement annuity and transfer your finances abroad, easily.
To request a callback from one of our friendly, efficient cross-border tax specialists, leave your contact details in the form below and we’ll be in touch soon!