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Tax residency status – The new words on everyone’s lips

South Africa has a residence-based tax system, which means that residents are subject to certain exclusions, taxed on their worldwide income, irrespective of where they earned this income. Tax Residency should not be confused with nationality, permanent residency, or citizenship. Any individual who is ordinarily resident in South Africa during the year of assessment or, failing which, meets all three requirements of the physical presence test, will be regarded as a resident for tax purposes.

A taxpayer can have citizenship and tax residency in multiple countries. Citizenship is a Home Affairs status, and tax residency is a SARS status; they are not one and the same and do not mirror each other.

With emigration on the rise, many taxpayers happily get on a plane, humming John Denver’s song “I am leaving on a jet plane, don’t know when I’ll be back again,” while automatically assuming that SARS has been informed that they have left and will not be returning.

This process does not automatically happen when you relocate to another country, and taxpayers need to be cognisant of the fact that the onus lies on them to prove to SARS that they have ceased their tax residency.

SARS will consider various factors to determine whether a taxpayer has ceased to be a tax resident of South Africa. Factors include the type of visa on which you have gone to a foreign country and proof of permanent residence in the foreign country. If available, they will also require a certificate of tax residence from the foreign revenue authority indicating that you are regarded as a tax resident in that country. Furthermore, SARS will also require details of any property you may still have, the purpose for which you are using it, and any business interest you may still have in South Africa. Details about your family, social interests, location of personal belongings and any return visits to South Africa (why and for how long) will also be required.

Changing your status from resident to non-resident must be done formally through a declaration process to SARS. The purpose of the declaration is to inform SARS of the change in tax residency that will impact the basis on which you will be subject to tax in South Africa and how your returns will be assessed in the future. The year in which you have ceased to be a tax resident may also result in a possible deemed capital gains tax disposal, depending on the type of assets you held and where they were located at the time.

Standard requirements must be submitted with all declarations, including a letter of motivation and a copy of your passport. However, additional information may be required depending on the basis you have ceased to be a tax resident in South Africa. If you cease to be an ordinary resident, you will need to supply additional information such as type of visa, certificate of tax residency and other personal information. Suppose you cease by way of the physical presence test, only the standard requirements must be supplied. If you cease due to the application of Double Tax Agreement (DTA), then a certificate of tax residence from the foreign revenue authority needs to be supplied.

Declarations will be declined if you do not meet the criteria or can’t provide SARS with the requested relevant material, so it is imperative to make sure you have all the supporting documents.

The field of expatriate tax is a daunting subject and can appear overwhelming at first. The process is new, but with the correct advice, this intricate and complex process can be completed without any issues of non–compliance in the future and will, once completed, ensure that your worldwide income and assets are protected. Please get in touch with Chartered Tax for any assistance.