Be Aware: ceasing SARS tax residency can significantly impact your taxes and international money transfers

There are specific rules if you live in South Africa and want to send money to another country. These exchange controls and tax rules are in place to ensure people pay their taxes correctly and that the money being sent is from legal sources. The rules for sending money depend on whether you’re a South African resident or non-resident for tax purposes. Determining your tax status can be tricky, as different government departments have different definitions of residency, so it’s essential to understand your specific situation and consult with a professional if needed. To point you in the right direction, we’ve compiled this guide that covers the fundamentals of tax residency in South Africa and what your status means when it comes to being taxed and making international money transfers from South Africa.

Tax residency in South Africa – what you need to know

The South African Revenue Service (SARS) considers an individual a tax resident based on either the ordinary residence or physical presence tests, as laid out in the Income Tax Act. A person who does not meet the requirements of the ordinarily resident test can still be considered a tax resident if they meet the time-based requirements of the physical presence test.

In March 2001, South Africa significantly shifted to a residence-based tax system. Under this system, tax residents are liable for taxation on their worldwide income, including Capital Gains Tax (CGT) on the disposal of worldwide assets, with specific exemptions or exclusions. This transition had a profound impact on residents’ tax obligations, making it crucial to understand the rules.

South African tax residency – what is “ordinary residence?”

The concept of “ordinary residence” is not explicitly defined and must be determined case by case. This is a more subjective test and depends on where you spend most of your time and where your home ties are.

Read more: Expat Tax Matters: How does the “ordinarily resident” test work?

South African tax residency – what is “physically present?”

An individual can be considered a tax resident in South Africa through physical presence, determined by the “days test.” This test evaluates an individual’s South African tax residency based on the total number of days they spend in the country. The assessment is quantitative, focusing solely on the duration of physical presence; the purpose or nature of the visit does not factor into the equation.

To be considered a tax resident of South Africa due to physical presence, an individual must meet the following requirements:

• Be physically present in South Africa for periods exceeding 91 days in aggregate during the year of assessment under consideration.
• Accumulate 91 days in aggregate during the five assessment years preceding the year under consideration.
• Spend 915 days in aggregate during the five preceding years of assessment.

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

Other things to know about your South African residency, citizenship and exchange control status:

• Citizenship: Individuals born in South Africa are generally considered residents for exchange control purposes, even if they have left the country. Renouncing South African citizenship does not affect your tax or exchange control residency status.
• Excon restrictions: Excon imposes restrictions on the monetary values and frequency of transferring funds abroad. Tax residents have available to them the Single Discretionary Allowance which enables them to move abroad up to R1 million for any purpose, without prior tax clearance, as well as the Foreign Capital Allowance to move up to R10 million with approval from SARS. Any amount above R10 million requires SARS and SARB (South African Reserve Bank) approval.
• Ceasing to be a tax resident: To claim non-residency for tax and exchange control purposes, individuals must undergo the process of tax emigration through SARS and receive confirmation of their newly updated non-resident status.

Read more: Transferring money out of South Africa – the Single Discretionary Allowance vs the Foreign Capital Allowance.

Becoming a non-resident for tax purposes in South Africa

To cease being a tax resident in South Africa, you must meet specific criteria outlined by SARS. This typically involves being physically absent from the country for a certain period and demonstrating an intent to relocate permanently.

What steps are involved in breaking tax residency with South Africa?

1. Update SARS details: Use the RAV01 form to update your details with SARS. This triggers an investigation to assess your claim of non-residency.
2. Make your case: Submit a Declaration of Cease to be a Tax Resident and supporting documentation to provide evidence of your permanent relocation.
3. Pay exit tax: If applicable, pay any exit tax due based on the value of your assets.
4. Obtain non-resident confirmation: Once SARS is satisfied, you will receive a Non-Resident Confirmation Letter confirming your new status.

What are the implications of becoming a non-resident for tax purposes?

• Reduced tax liabilities: You will generally only be subject to South African tax on income derived from South African sources.
• Exit tax: You may owe an exit tax based on the value of your assets at the time of ceasing residency.
• Fewer tax returns: You will only need to file South African tax returns if you continue to earn income from South Africa.
• Retirement annuity cash-out: After three years as a non-resident, you can withdraw the total value of your retirement annuity before age 55, less tax.

What is the impact of your South African tax residency status?

Estate duty is levied on the worldwide property and deemed property of a natural person who is ordinarily resident in South Africa. Non-residents are generally subject to Estate Duty only on South African assets. Regarding to distributions from South African trusts: The conduit principle for non-residents has been effectively disabled. Starting from 01 March 2024, income distributions from South African trusts to non-resident taxpayers are subject to a fixed tax rate of 45% within the trust before the distribution can be made. This aligns with the 36% capital gains tax rate applied to non-resident beneficiaries within trusts.

When it comes to international money transfers, they require execution through Authorised Dealers, who help residents and non-residents navigate the legal and regulatory complexities associated with transferring funds to and from South Africa.

Annual South African exchange control allowances for residents and non-residents

• Single Discretionary Allowance (SDA): Residents over 18 can transfer up to R1 million abroad annually without approvals. Minors have an allowance of R200,000 per year. Non-residents may avail limited travel allowances in the year of ceasing tax residency.
• Foreign Investment/Capital Allowance (FIA/FCA): Residents and emigrants can transfer up to R10 million abroad annually for foreign investment purposes. A SARS application for Tax Compliance Status (TCS) is required for an Approval – International Transfer clearance. The R10 million limit may be increased through a more complex process involving SARB.

Repatriating money from SA as a non-resident

• Income: Funds from income sources (rental income, dividends, pension income) generally do not require explicit SARS permission for transfer abroad. A TCS PIN letter is necessary to show that tax affairs are in order.
• Capital: Funds from capital sources (property sales, retirement annuities, investments) require a TCS PIN for an AIT (up to R10 million). Non-residents must provide proof of the fund’s source and evidence of ceasing tax residency.
• Transfers exceeding R10 million: Both residents and non-residents need SARS approval for AIT and an application to SARB for transfers exceeding R10 million. A stringent verification process, including tax status, fund sources, and anti-money laundering checks, is required.

FinGlobal: your trusted South African forex provider

When conducting international money transfers, choosing a forex service provider that understands the tax, legal, and exchange control implications is a huge deal. FinGlobal is a leading South African forex provider that specialises in assisting individuals and businesses to clarify their tax residency status and make seamless and compliant international money transfer from South Africa. With our in-depth knowledge of South African regulations and global financial markets, we offer expert guidance, competitive exchange rates, efficient transfers, compliance expertise and personalised service tailored to your specific needs and goals.

Trust FinGlobal to handle your international money transfers with confidence and expertise. Contact us today to get started.