If you’re a South African, it’s important to know that your relationship with the South African Revenue Service (SARS) is complicated. How so? Well, you don’t actually have to live in South Africa to count as a tax resident and because of this, South Africans living abroad must clarify their tax residence status since tax law amendments made their foreign employment income taxable since March 2021.
SARS establishes tax residence using two tests, namely the ordinarily resident test, and the physical presence test. While the ordinarily resident test is a subjective test that examines an individual taxpayer’s intention to be ordinarily resident in sunny South Africa, the physical presence test objectively assesses the time spent by an individual within the borders of the Republic. This means that even if your intention is not to be ordinarily resident in South Africa, if you return to the Republic often enough – for business, or to visit family left behind – you might spend enough time on SA soil to be taxed by SARS anyway.
Let’s take a look at the requirements of the physical presence test and how it is used by SARS to determine tax residency.
South African tax residency: What’s the big deal?
Your status as a tax resident in South Africa determines your tax obligation to SARS. This is because South Africa has a residence-based taxation system in terms of which residents can be taxed on all their income (both foreign and locally earned) while non-residents can only be taxed on income sourced in South Africa.
South Africa tax residency test: what does SARS look at?
As mentioned, there are two tests that determine tax residency in South Africa.
- Ordinarily resident: An individual who has their primary home or regular “place of abode” in South Africa is likely to count as resident for tax purposes. Given that this test examines the individual’s intention, the outcome is subjective and at the discretion of the tax authority, assessed on a case-by-case basis. However, if an individual does not meet the requirements of this test, the physical presence test must then be applied.
- Physical presence: A person who spends more than 183 days in a year in South Africa is likely to be classified a resident for tax purposes.
What/who is a South African tax resident?
A South African tax resident is an individual who meets either the requirements of the ordinarily resident test, or the physical presence test, or both.
A tax resident is someone who fulfills the requirements of the ordinarily resident test – their intention is to be a South African tax resident
The concept of “ordinary residence” does not have a statutory definition and has been a hotly-contested subject in case law over the years. SARS applies this test on a case-by-case basis and according to the SARS Interpretation Note 3 (Issue 2): Resident: Definition in relation to a natural person – ordinarily resident, a person is ordinarily resident in the place where they regularly, normally, or customarily live.
Read more: about the SARS tax residency test – ordinarily resident.
A tax resident is someone who fulfills the requirements of the physically present test – they spend a specific amount of time in South Africa
Even if an individual does not meet the requirements for the ordinarily resident test, they can still be a tax resident as a result of their physical presence. The requirements for this test are detailed in SARS’ Interpretation Note 4 (Issue 5): Resident: Definition in relation to a natural person – physical presence test.
How do you test for tax residency in South Africa using the physically present test?
To meet the requirements of this tax residency test, you must be physically present in South Africa for a total of not less than 91 days in the current tax year, and at least 91 days in each of the previous five tax years. In addition, you must also have been physically present in the Republic for a total of at least 915 days out of the five prior tax years.
Some rules around the physical presence tax residency test:
- The days that you are physically present in South Africa include the day of arrival and the day of departure. For example, if you arrive in South Africa on the 1st of June and depart the following day, that will count as being present in South Africa for two days.
- A day starts at 00:00. Therefore, if you arrive at 23:55, this will count as you being physically present in South Africa for a full day, even though it was only five minutes.
- A day does not count if you are in transit through South Africa or traveling between two places outside South Africa, as long as you do not formally enter the country.
Here are the steps on how to test for tax residency in South Africa using the physically present test:
- Add up the number of days that you were physically present in South Africa in the current tax year (The threshold is 91 days)
- Add up the number of days that you were physically present in South Africa in each of the preceding five tax years. (The threshold is 91 days per year)
- Add up the total number of days that you were physically present in South Africa in the preceding five tax years. (The threshold is 915 days)
If you have met all three requirements, you will pass the physically present test and will be considered a tax resident of South Africa. If you do not meet all three requirements, you will not meet the criteria to qualify as a tax resident as a result of your physical presence.
What is the 183-days tax rule in South Africa?
This rule applies to South African tax residents abroad, seeking tax relief from SARS on their worldwide earnings, by means of the foreign employment income tax exemption.
- What is the 183-day rule for tax residency?
- What is the foreign income tax exemption and how do you claim it?
How to become a non-tax resident of South Africa?
- Expats! Are you still a tax resident in South Africa? Here’s how to find out
- Breaking tax residency with SA: what you need to know about the SARS Declaration of Cease to be a Tax Resident
FinGlobal: tax specialists for South Africans abroad
Tax residency can be a slippery concept to grasp, which is why FinGlobal is on hand to assist you with every aspect of your tax compliance as a South African overseas. From tax clearance, to tax refunds and tax emigration, our team of tax specialists and cross-border financial experts can help you streamline your tax affairs.
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