Will a plane ticket and a new address be enough to escape your South African tax obligations? Think again. Many expats discover, to their dismay, that simply leaving the country doesn’t automatically cut ties with the South African Revenue Service (SARS). This can lead to unexpected double taxation on your hard-earned worldwide income – a situation you might not know about. So, suppose you’re a South African living abroad, or planning to. In that case, getting clued up on the complexities of South African tax residency rules is in your best interest to avoid making expensive mistakes.
South African tax residency – what does it mean?
South Africa uses a tax residency model, which states that an individual’s tax liabilities are not limited by physical presence. If you qualify as a tax resident in South Africa, you’ll be taxed on both your international and South African income streams, regardless of your current location.
It wasn’t always like this. A key shift in tax law took place in 2020, before which specific individuals enjoyed complete tax exemption on foreign income. Subsequent amendments brought these individuals back into the South African tax system.
Now, expats living and working overseas are taxed on their global income, assuming they meet the requirements for tax residency and have not officially completed tax emigration from South Africa through SARS.
Read more: Clarifying resident vs. non-resident tax status for South African expats.
How do you determine residency for tax purposes in South Africa?
Figuring out if you’re a South African tax resident involves two key checks by SARS. First, they look at your ‘ordinarily resident‘ status, which is about understanding your intentions when you moved – was your intention to relocate from South Africa permanently, or were there signs that you planned to return home one day at the end of your travels?
Then, they check your ‘physically present‘ status, which is about how much time you’ve spent in the country. Even if you don’t pass the first test, you could still be considered a tax resident if you’ve been physically in South Africa for long enough.
Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
What are the tax implications of emigrating from South Africa?
Even after physically leaving South Africa, you remain a tax resident until you formally inform SARS that you no longer meet their residency criteria and request a change to non-resident status for tax purposes. This official procedure, known as ‘tax emigration’, is the sole method to sever your tax ties with the South African Revenue Service. In other words, the only way to stop paying tax to SARS is to become a tax non-resident.
Until you qualify for and complete tax emigration, SARS will treat you as a South African tax resident. This means you’ll be expected to file tax returns that include your foreign employment income, which is then subject to taxation that’s also known as ‘expat tax’. If you meet the stipulated requirements, you can apply for an expat tax exemption on up to R1.25 million of your global income. You should also make sure you use applicable Double Tax Agreements to prevent dual taxation on foreign income.
Read more:
- South African working abroad? How to handle foreign income on the SARS tax return.
- 183 days and counting: tax residency rules for South Africans overseas.
- What is exempt foreign employment income in South Africa?
Your South African tax residency status and Capital Gains Tax
Tax emigration from South Africa triggers specific tax consequences for expats. Upon terminating your tax residency, SARS slaps you with one final tax bill, treating your status change to non-resident as a Capital Gains Tax (CGT) event. This means you are deemed to have sold all global assets (excluding South African real estate) at their market value on the day before your departure. This CGT, often termed ‘exit tax’, is payable on becoming a non-resident.
Once you have successfully jumped through every SARS tax emigration hoop and settled any exit tax, SARS will issue a Non-Resident Confirmation Letter, verifying that you no longer meet their residency criteria. You can then deregister your tax number to terminate your South African tax obligations, provided you have no further assets or income remaining in South Africa.
If it wasn’t enough that tax emigration protects your worldwide income from the reach of SARS, your new non-resident tax status allows you to access your retirement annuity in full after three consecutive years. Withdrawing your retirement annuity in full (less taxes) and transferring the proceeds abroad is usually a milestone in finalising financial emigration from your old home to your new one.
Read more: Emigration and changing your tax resident status after leaving South Africa.
Why tax residency matters even if you’ve already emigrated
Failing to formally address your tax residency with SARS after emigration can have severe financial repercussions. You risk being treated as a South African tax resident, even while living abroad, leading to:
- Double taxation: Paying taxes in South Africa and your new country significantly increases your tax burden.
- Increased exit tax: Potentially facing a higher, one-time tax on your assets, based on their value at your departure, when you finally formalise your status.
- Penalties and interest: Accumulating substantial debt to SARS due to late payments.
- Retirement fund access issues: Obstacles in accessing your South African retirement funds without proper documentation.
- Investment restrictions: Limitations on your ability to invest in particular South African assets.
- Transfer complications: There are difficulties with international transfers, including inheritance access or property sales, without a Non-Resident Confirmation Letter from SARS.
FinGlobal: Simplify your tax obligations with us
Clarify your residency status with SARS as soon as possible to avoid post-emigration tax complications. FinGlobal offers comprehensive services for South African expats, including tax emigration, expat tax compliance, tax refunds, retirement annuity withdrawal, international money transfers, and exchange control advisory. To get started with our convenient, reliable cross-border services, simply leave us your contact details below or email info@finglobal.com with your queries.
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