Thinking of a big life change? You’re not alone! Moving abroad can be one of the most exciting decisions you’ll ever make, but it’s important to understand the tax implications so you can manage your expectations. Moving overseas is rarely as easy as packing your belongings, booking your flights and arriving on the other side, having left the South African Revenue Service (SARS) behind. South Africa has a residency-based tax system, which means you’ll be taxed on your global income, even if you live outside the country.
To avoid this, you may want to consider tax emigration. To help you with your deliberation, in this guide we’ll break down what tax emigration is, why it’s important, and how to cease your tax residency in South Africa.
What is tax residency in South Africa?
Imagine South Africa as a club. If you’re a member, you pay membership fees (taxes) to the club, no matter where you earn your money. That’s basically how tax residency works. If you’re a member of South Africa’s tax club, your membership fees are paid to SARS. But moving overseas means that you can qualify for membership at a foreign tax club, which might mean paying tax twice.
So, who’s a member of this tax club? The South African Revenue Service decides who’s in and who’s out, obviously. They look at two main things:
- Where is your home base? Do you have strong ties to South Africa, like family, property, or a job? Do you intend to return to South Africa to stay in the long-term?
Read more: Expat Tax Matters – How does the “ordinarily resident” test work? - How much time do you spend here already? If you spend a certain number of days in South Africa over a few years, you might be considered a tax resident, even if you don’t see it as your permanent home.
Read more: Expat Tax Matters: how does the “physical presence” test work?
Why does it matter which tax club you belong to? If you’re a member of South Africa’s tax club, as a tax resident, you’ll need to pay taxes on your global income, even if you earn it outside of South Africa.
Leaving South Africa? Don’t forget to tie up your tax loose ends
If you’re planning to move abroad, it’s important to handle your South African tax affairs correctly. This involves a process called “tax emigration” in which you apply to SARS to notify them that you no longer meet the requirements for tax residency, and request that your tax status should be formally updated to reflect non-residency.
Read more: Emigration and changing your tax resident status after leaving South Africa
Why is tax emigration from South Africa important?
- It’s the long-term solution to avoid double taxation: By officially changing your status to non-resident for tax purposes, you can prevent being taxed on your income by both South Africa and your new country of residence.
- You can also access your retirement funds: Tax emigration can help you access your South African retirement funds before the official age of 55.
- Simplify your tax affairs: Once you’re no longer a tax resident, you’ll have fewer tax obligations in South Africa, if any.
What does tax emigration involve? How to become a non-resident of South Africa for tax purposes:
- Formal notification: You need to inform SARS (South African Revenue Service) of your intention to permanently relocate from South Africa and cut financial and tax ties.
- Supporting documentation: You need to provide SARS with proof of your departure, new address, and other relevant information to back your assertion that you no longer meet the requirements for tax residency.
- Exit tax (if applicable): You may need to pay a one-time tax on the value of your worldwide assets at the time of departure, which is essentially capital gains tax on your emigration.
What are the risks involved with not changing your tax residency status after emigration?
- Unexpected tax bills: You could face higher taxes and penalties on top of a surprise tax liability on your worldwide income.
- Delayed access to retirement funds: You may not be able to access your retirement savings as planned.
- Complex financial transactions: International financial transactions may become more difficult, if not impossible, without the correct paperwork to clarify your tax resident status for exchange control purposes.
Read more: The dangers of not completing tax emigration after you leave South Africa.
How to cease tax residency in South Africa
To cease tax residency in South Africa after emigration, you’ll need to follow these steps:
1. Inform SARS that you’re leaving the tax club:
- RAV01 form: You need to complete and submit the Registration, Amendments, and Verification Form (RAV01) on the SARS eFiling portal.
- Date of cessation: Clearly indicate the date you ceased to be a tax resident on the RAV01 form. This triggers an investigation into your tax status.
- Supporting documentation: Prepare and submit the necessary supporting documents that will be required, such as:
– A signed Declaration of Cease to be a Tax Resident stating your reason for ceasing residency (ordinarily resident test or physical presence test).
– A letter of motivation detailing your reasons for leaving South Africa and your intention to reside abroad permanently.
– A copy of your passport or travel diary.
– Proof of your new address abroad.
– Any other relevant documents that support your claim.
Read more: Tax planning secrets you must know before leaving South Africa.
2. Meet the requirements for breaking your tax residency with South Africa:
You must meet one of the following criteria to be eligible to be considered a non-resident for tax purposes:
- Ordinarily resident rest: You must demonstrate that you intend to leave South Africa permanently. SARS will consider factors like your remaining ties to the country, such as family, property, and employment.
- Physical presence test: You must spend less than 91 days in South Africa in the current tax year and less than 91 days in each of the previous five tax years.
Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
3. Pay exit tax (if applicable):
If you have significant worldwide assets in South Africa, you may be subject to an exit tax. This is a one-time tax on the capital gain realised on your worldwide assets at the time of emigration.
Read more: Expat essentials – Understanding Capital Gains Tax in South Africa.
4. Obtain your Non-Resident Confirmation Letter from SARS:
Once SARS is satisfied that you’ve met their requirements and paid any exit tax, they’ll issue you a Non-Resident Confirmation Letter. This letter is your official proof of non-resident status.
Read more: How and why to obtain a SARS Non-Resident Tax Status Confirmation Letter.
FinGlobal: tax emigration specialists for South African expats
If you’re living and working abroad, you’ve got a tax obligation in South Africa that cannot be ignored. It’s important to clarify your tax residency status with SARS as soon as possible after emigration. FinGlobal can assist you with tax emigration, expat tax compliance, retirement annuity withdrawal, non-resident confirmation letters and more. No matter how complicated your tax situation is, FinGlobal can help you get on the right side of SARS.
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