Two ways to determine tax residency
On 1 March 2020, new rules about expat income and taxation thereof come into effect. Two tests are applied to determine your tax residency.
The ordinary residence test
The ordinary residence test serves as the point of departure; in other words, it is the first step in determining tax residency.
According to the South African Revenue Service (SARS), the following requirements need to be satisfied for a person to qualify as ordinarily resident:
- An intention to be ordinarily resident in South Africa, and
- Steps indicative of this intention being taken.
SARS may challenge a person’s intention to be ordinarily resident, or not, by looking at objective facts that might disprove such a subjective intention.
It is important to note that a person can be ordinarily resident in South Africa regardless of the number of days spent in, or absent from, South Africa.
Here are helpful questions to ask in determining whether you are ordinarily resident in South Africa:
- Is South Africa the country to which I return to from my wanderings?
- Is my primary residence within South Africa?
- Where is my most settled place of residence?
- How many days do I spend in South Africa compared to other jurisdictions?
- What nationality am I?
- Do my family members reside in South Africa?
- Where is my immovable property located?
- Where are my assets or personal belongings located?
- Is there any documentary evidence on file (such as emails and other correspondence) implying an intention to live permanently in South Africa?
- Where are my business and economic interests primarily located?
- Do I have any political, social and religious ties to South Africa?
If a person has no intention to be resident in South Africa and this intention is objectively evidenced by steps taken to give effect to that intention, that person will not be ordinarily resident in South Africa.
The days test
The next step in determining if a person is resident in South Africa is to apply the days test.
If you are not ordinarily resident in South Africa, you may still qualify as a ‘resident’ based on the number of days spent in the country over a period of six years. Intention is irrelevant under this test.
In terms of the days test, you are resident in the following circumstances:
- If you are physically present in South Africa for more than 91 days in aggregate during the current year of assessment; and
- If you have been physically present in South Africa for more than 91 days per year during each of the previous five years of assessment; and
- If you have been physically present in South Africa for a period(s) exceeding 915 days in aggregate during the previous five years of assessment.
In calculating the number of days, a day includes a part of a day, but excludes any day spent in transit through and without formally entering South Africa.
In the first year of assessment in which you fulfil the days test requirements, you are deemed to be a resident from the first day of that year of assessment.
If you are deemed a South African resident because of the days test, residency can be broken by leaving South Africa and remaining outside of the country for a continuous period of at least 330 full days.
You are welcome to contact the Chartered Tax team if you have any queries regarding this new legislation.