Tax emigration from South Africa
Want to wrap up your tax affairs in South Africa? It’s time to exit the South African tax system.
What is tax emigration from South Africa?
Tax emigration involves applying to the South African Revenue Service (SARS) to formally cease your South African tax residency. This process results in a change of your tax status from resident to non-resident for tax purposes.
What do expats need to know about South African tax law?
South Africa operates under a residence-based tax system. If you are a South African living abroad or planning to do so, it’s crucial to determine your tax status with SARS. If you haven’t applied to cease your tax residency in South Africa, you are still considered a South African tax resident. However, you have the option to backdate your cessation date to when you physically left the country on a permanent basis.
Taking this step is particularly important if you have assets or anticipate receiving an inheritance from South Africa, as it helps ensure your tax affairs are current. Once the tax cessation process is completed, you will be recognized as a tax non-resident from a South African perspective, making it easier to transfer money offshore in the future.
In South Africa, you are considered a tax resident if you meet either of two tests:
- The ordinarily resident test, or
- the physical presence test, provided you are not considered an exclusive tax resident of another country under a Double Tax Agreement.
The ordinarily resident test is the initial assessment to determine residency. If this test results in a negative determination, only then is the physical presence test applied to determine tax residency.
The ordinarily resident test involves a subjective assessment of the taxpayer's intention to be a resident and the circumstances that support this intention.
This test is used most when you have left South Africa.
You are deemed 'ordinarily resident' when you maintain your usual or primary residence – a place that can be defined as your true home.
The physical presence test is an objective assessment, solely based on the number of days spent physically within South African borders during a specific period. The criteria for this test are stipulated by the South African Income Tax Act.
This test is used most when you are staying in South Africa.
This test is applied when you do not meet the criteria of the ordinarily resident test, such as when you left South Africa to work abroad with no intention of returning.
To satisfy the requirements of this test, you must be physically present in South Africa for no less than:
- 91 days in total during the tax year in question
- 91 days in aggregate during each of the five tax years preceding that tax year
- 915 days in aggregate during the five previous tax years.
Ceasing tax residency in South Africa has significant tax implications, particularly in relation to Capital Gains Tax (CGT).
- When you cease tax residency, you are considered to have sold all your global assets to your foreign self at their market value on the day before you ceased tax residency.
- When you cease tax residency, you are considered to have sold all your global assets to your foreign self at their market value on the day before you ceased tax residency.
This can have a substantial financial impact when planning your emigration, underscoring the importance of carefully evaluating your options.
When you are no longer liable for tax on your foreign income in South Africa, your tax liability is restricted to income and assets sourced locally.
Under these circumstances, you have the option to access your pension preservation fund, provident preservation fund, or retirement annuity before its maturity date, provided you have maintained non-resident status in South Africa for a minimum of three years.
Changing your tax resident status necessitates the submission of an application (RAV01) to SARS, which will be evaluated on a case-by-case basis. The approval process depends on the completeness and merit of the information provided.
No, tax emigration alters your tax residency status from resident to non-resident for tax purposes, but it does not automatically deregister you from the SARS system. Your tax record remains active with SARS. As a tax non-resident, you are not required to submit annual tax returns unless you earn income in South Africa.
If you intend to deregister from the SARS system, you should initiate the process by submitting a request for deregistration to SARS, along with the reasons for your request.
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