Tax residence in South Africa can be a slippery concept to grasp. Even though you might have left South Africa permanently a number of years ago, if you visit home regularly and for long enough, there is a strong possibility that you could still be considered a tax resident in South Africa. What does it mean to be considered a tax resident in South Africa if you live and work abroad? It means you will be expected to pay expat tax on your worldwide earnings, plus you’ll be taxed on any income sourced in South Africa. Surprised? Let’s take a look at residence-based tax in South Africa and how to become a non tax resident.
How do I know if I am a tax resident in South Africa?
Tax residence in South Africa is not based on whether you are physically resident in South Africa. In other words, the mere fact that you live and work overseas does not automatically break your tax residence.
So what makes you a tax resident in South Africa?
Tax residence is determined by the South African Revenue Service (SARS) using two tests contained in the Income Tax Act. An individual is a resident for tax purposes in South Africa either by way of ordinarily resident or by way of physical presence. It is not necessary to meet both tests, but if the first test (ordinarily resident) is not met, the second test is then applied, and if you have spent enough time physically present in South Africa, you could qualify as a tax resident even if you have no intention to return to South Africa permanently.
Test 1: Are you ordinarily resident in SA?
This test looks at the taxpayer’s intention and examines the circumstances to determine whether they point to a conclusion that the individual considers South Africa to be their true, permanent home. While a continuous physical presence is not required, the individual will be ordinarily resident if South Africa is the place to which they intend to return at the end of their travels.
Read more: how does the ordinarily resident test work?
Test 2: Have you been physically present in SA for the requisite time?
An objective assessment that looks at the amount of time the individual has spent in South Africa. This test consists of three requirements all of which must be met.
The person must have been physically present in South Africa for no less 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.
Read more: how does the physical presence test work?
How to become a non tax resident of South Africa
There are three ways you can cease tax residency:
- By application of the physical presence test
- By application of the ordinarily resident test
- By application of a Double Tax Agreement, where pertinent.
If you no longer meet the requirements of the tax residency tests or a Double Tax Agreement applies, you must declare to SARS that you have ceased to be a tax resident.
How do I declare to SARS that I have ceased to be a tax resident in South Africa?
The step-by-step process to become a tax non-resident in South Africa is –
Step 1: Notify SARS – declare that you have ceased to be a tax resident
If you have ceased to meet the requirements for tax residency, you must notify SARS using the Registration, Amendments And Verification Form (RAV01) on eFiling. You will capture the date on which you ceased to be a tax resident under the Income Tax Liability Details section.
Step 2: Submit your documentation to SARS
Using the RAV01 form to update your taxpayer details triggers a SARS investigation to confirm your tax residency status. SARS will request that you submit certain documents that support your assertion that you have ceased to be a tax resident in South Africa.
This documentation must provide conclusive proof that you intend to live abroad permanently.
- Copies of your passports, with entry and exit stamps as proof that you have left.
- Copy of your visa/residency permit/citizenship documentation or foreign passport as proof that you have taken up residency elsewhere.
- A signed declaration explaining the grounds on which you justify your tax non-residency.
- A statement of your personal assets and liabilities that you held the day before the day before you left South Africa.
- A motivational letter containing your legal argument to persuade SARS to change your tax status to non-resident.
Step 3: Settle your exit tax bill with SARS
After SARS has reviewed your documentation in line with your assertion that you have ceased tax residency, they will approve your application. Ceasing tax residency is a trigger for Capital Gains Tax (known as an exit tax). If you had, or still have, assets that would trigger such a tax, you are also required to submit documentation for each asset.
Step 4: Get tax clearance in respect of your emigration
Once you have successfully ceased your tax residency with SARS, you can apply for tax clearance. The Emigration Tax Compliance Status (TCS) PIN is a confirmation of your tax compliance and shows you have settled your exit tax with SARS. This PIN is valid for one year from the date of issue.
Step 5: Apply for a confirmation of non-residency letter from SARS
This letter is official confirmation that SARS has changed your tax status from resident to non-resident and indicates the date from which your tax non-residency is effective.
What are the benefits of ceasing tax residency in South Africa?
- You will be taxed on South African sourced income only
- You will not be taxed on worldwide income
- You become eligible to cash in your retirement annuity before 55.
FinGlobal: retirement annuity encashment specialists
We can assist you to complete the process of tax emigration to get your status changed from resident to non-resident of South Africa for tax purposes, and then assist you with withdrawing your retirement annuity before the age of 55 and transferring the proceeds abroad. Because we have close working relationships with all of the major insurers and with SARS, we can ensure that there are no unnecessary delays in getting your hands on your retirement savings.
Put out service to the test! Leave us your contact details and we’ll be in touch to discuss your cross-border tax and financial emigration requirements.