Heads up! The South African Revenue Service (SARS) is cracking down on people who live outside South Africa but might still be liable to pay taxes here. You could be in trouble if you’ve emigrated without sorting out your tax status. SARS is getting serious about checking who’s a South African tax resident and who’s not. They’ve made it easier to tell them you’re leaving (or have left), but you must do it online through eFiling. Don’t ignore this – it’s essential to get your tax affairs in order.

Here’s what you need to know about tax residency in South Africa, who is considered a resident for tax purposes, and how to change your tax status to a non-resident.

What is tax residency in South Africa?

South Africa has a residency-based system of taxation, which means that SARS can tax individuals who qualify as tax residents on their income, whether earned locally or abroad. Individuals who qualify as non-residents can only be taxed on their income sourced in South Africa.

How does tax residency impact personal income tax in South Africa?

Previously, tax residents abroad earning an income in foreign employment could claim a blanket tax exemption in South Africa, but this has changed. Now, tax residents temporarily abroad only qualify for an exemption of up to R1.25 million on their foreign income if they meet the time-based requirements, meaning that they are obliged to declare foreign employment income in South Africa and pay tax to SARS.

How can you avoid paying tax to SARS on your foreign employment income if you live and work abroad? The most clear-cut way to achieve this is to cease your tax residency with SARS and become a non-resident for tax purposes.

Who is considered a tax resident?

SARS figures this out in two ways using tax residency tests.

1. Where do you belong? SARS looks at your life to see if South Africa is your “home base” (ordinarily resident test). This is tricky because they consider your feelings and what you do, not just where you live.
2. How much time are you here? If you spend a certain number of days in South Africa over a few years (physically present test), you might be considered a tax resident even if you don’t consider it home.

In short, if you do not meet the requirements of the ordinarily resident test, you can still be a tax resident under the physically present test.

Read more:

• Taxing matters: a guide to understanding South African tax residency for expats.
• Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.

1. If you have permanently relocated, you need to complete tax emigration (no longer financial emigration) from South Africa to terminate your tax obligation with SARS.

It is essential to understand that if you have left South Africa, you must inform SARS of your move.Failing to inform SARS can result in complic ations with your tax affairs, with the possibility of non-compliance issues, administrative penalties, and more nasty surprises that can be avoided by simply following the correct procedures.

Read more:

• Don’t let SARS be the last to know: when to notify the authorities of your tax status change.
• The dangers of not completing tax emigration after you leave South Africa.

2. You will need to pay the exit tax before you can cut ties with SARS and have your tax status changed to non-resident.

Global asset disposal is deemed to occur when you cease your tax residency with SARS after you leave the country. Taking their one last chance to tax you before you leave the tax system, SARS treats you as if you have sold off your worldwide assets (excluding South African immovable property and retirement annuities/pensions) at market value on the day before you left. This capital gains tax on non-residents can have implications for individuals who hold discretionary investments and foreign properties.

Read more: What you need to know about how exit tax is calculated in South Africa.

3. You’ll have to follow the correct tax emigration procedure through SARS to have your tax resident status changed and become a non-resident.

The old way of leaving South Africa’s tax net, through the Reserve Bank via financial emigration, is no longer used. Now, you need to tell SARS directly you’re leaving by filling out a specific form known as the Declaration of Cease to be Tax Resident. This includes explaining why you think you’re no longer a South African tax resident. Once SARS agrees, they’ll send you a letter saying you’re officially a non-resident. This Non-Resident Confirmation Letter from SARS is the only officially-accepted proof of having changed your status successfully with SARS. If you’ve left the country, you’ll need it to cash in your retirement annuities and to transfer funds abroad.

It’s important to know that if you used the old financial emigration system or you haven’t done anything yet, SARS might still think you’re a South African taxpayer. Even if you’ve checked a box on your tax return saying you’re not a resident, you might need to confirm this with SARS.

Read more: Ticking the non-resident box was not enough, expats must confirm tax status with SARS urgently.

4. Ceasing your tax residency does not automatically mean you no longer need to submit tax returns once you’re a non-resident.

While you will no longer be taxed on your foreign employment income, you must submit a tax return to SARS if you have assets and income remaining in South Africa. This is important to maintain tax compliance, and it is advisable to file a tax return as a non-resident to SARS (even if it is a nil tax return) until you can deregister your tax number entirely.

5. Expats often assume (incorrectly) that they are exempt from tax in South Africa if their income is less than R1.25 million.

The foreign employment income tax exemption in section 10(1)(o) of the Income Tax Act is only available to South African tax residents but does not apply automatically. To use this exemption, you must file a tax return to claim the exemption, which requires you to declare the total amount of your income. Failure to submit a tax return may lead to SARS charging penalties and interest for non-compliance.

FinGlobal: specialists in expat tax compliance

Managing your tax affairs in two jurisdictions can get complicated and feel overwhelming, particularly if you’ve only recently emigrated from South Africa and are not sure what to expect. To ensure that you stay on the right side of the law with tax authorities, it is a good idea to seek guidance from tax professionals.

This is where FinGlobal shines. With a team of expert cross-border financial planners and tax advisors, we can help you understand your South African tax residency status, streamline your tax affairs, and clear up any administrative headaches. We’re ready to assist you with everything from tax emigration, to tax clearance, and tax refunds, retirement annuity withdrawals and more.

To discuss your unique tax situation and find out how FinGlobal can assist, please leave your contact details below and we’ll be in touch!