Are you thinking of packing your bags and heading overseas? That’s incredible! But before you dive headfirst into your new adventure, there’s something important to consider: your taxes. You might think you’re off the hook once you’re out of the country. Well, not quite. The South African Revenue Service (SARS) doesn’t automatically cut you loose just because you’re physically gone. You must go through a specific process to officially become a non-resident for tax purposes. If you don’t, you could be liable for taxes in South Africa on your foreign income, which isn’t exactly what you had in mind for your new life abroad.
Let’s talk about how to become a non-tax resident of South Africa, the risks of not doing it, and the benefits of being a non-resident.

What is tax residency in South Africa?

Tax residency is your tax home. It determines where you’re obligated to pay taxes on your income. If you’re a tax resident of South Africa, you’ll usually be taxed on your worldwide income, no matter where you earn it.

There are two main ways to determine if you’re a tax resident in South Africa:

1. Ordinarily resident: This is a more complex test examining where your life is centred. It considers factors like where you live, your family, and your ties to the country.
2. Physical presence test: This is a simpler test based on the number of days you’ve spent in South Africa over a certain period.

You qualify as a tax resident if you meet either of these tests. It’s essential to understand your tax residency status because it can significantly impact your tax obligations. However, it’s just as important to know that until you officially cease tax residency, SARS is entitled to treat you like a tax resident.

As such, physically leaving South Africa doesn’t automatically mean you’re off the hook for taxes. Even if you no longer meet the requirements to be considered a tax resident, you’ll need to tell SARS you want to stop being one officially. This means formally requesting that SARS recognise you as a non-resident going forward by completing the process of tax emigration from South Africa.

Read more: Who pays what? The key difference in income tax obligations between residents and non-residents.

Financial emigration vs tax emigration

The terms ‘financial emigration’ and ‘tax emigration’ are often used interchangeably in the news and on expat forums, but they’re very different concepts. Financial emigration from South Africa was previously the process by which South African emigrants could terminate their relationship with the South African Reserve Bank. By completing formal emigration in this way, individuals could have their status changed from resident to non-resident for exchange control purposes. This was relevant when becoming an exchange control resident, which was the trigger event for early retirement annuity withdrawal after emigration.

The procedures have changed over the last few years, and SARS has stepped in to oversee the regulation of South African emigrants. As such, to become a tax non-resident of South Africa, it is necessary to complete tax emigration through SARS. Once SARS formally notes you as a non-resident for tax purposes, you can access the total value of your retirement annuity for withdrawal (less tax and penalties) after having maintained non-resident status for three consecutive years.

Read more:

• Financial Emigration vs Tax Emigration in SA.
• SARS Alert: financial emigration doesn’t automatically make you a tax non-resident.
• Top reasons South Africans living abroad consider tax emigration.

How to become a tax non-resident of South Africa

To cease being a tax resident in South Africa, you must meet the specific criteria outlined by SARS. This typically involves being physically absent from the country for a certain period. You must have also left permanently. Once you have met the requirements, you must declare to SARS that you intend to cease being a tax resident.

Becoming a non-resident for tax purposes starts with updating your details with SARS using the RAV01 form. This triggers an investigation by SARS that will assess your claim that you no longer meet the tax residency requirements and double-check your current tax residency status. To help SARS with their investigation, the Declaration of Cease to be a Tax Resident must be submitted, along with the necessary supporting documentation that shows you have permanently relocated with no intent to return.

Once SARS is satisfied that you have met their requirements and paid any exit tax owing on your emigration, you will be issued a Non-Resident Confirmation Letter from SARS. This proves your status changed to non-resident, and you will no longer be taxed on your worldwide income. However, it’s essential to consult with a tax professional to ensure you fully understand the implications of this status and any ongoing tax obligations you may have.

Read more: What happens if you ceased tax residency in South Africa a number of years ago without notifying SARS?

What happens when you become a non-resident for tax purposes?

Once SARS agrees that you’re no longer a tax resident and you’ve completed all the necessary steps, you’ll officially be a non-resident for tax purposes. This means a few things:

• Exit tax: You might owe a special “exit tax“. This is calculated based on the value of your assets on the day you stopped being a resident.
• Fewer tax returns: You will only need to file South African tax returns if you still earn money from South Africa.
• You become eligible to cash in your retirement annuity: After being a non-resident for three years, you can withdraw the total value of your RA, less tax.

Read more: Emigrating from SA? What must be part of your Financial Emigration Plan™?

Why is tax residency status vital if you’ve emigrated from South Africa?

If you leave South Africa without properly completing tax emigration, you could face some severe consequences, as SARS is entitled to treat you as a tax resident still, until you have made it official. This means you could be in for:

• Double taxation: You might be liable for taxes in both South Africa and your new country, resulting in a hefty tax bill.
• Higher exit tax: When you eventually regularise your tax status, SARS could charge you a one-time tax based on the value of your assets when you left, potentially leading to a higher tax bill.
• Penalties and interest: If you don’t pay your exit tax or other taxes on time, you could rack up all sorts of nasty debt to SARS.
• Retirement fund issues: You might have trouble accessing your South African retirement funds early without the necessary paperwork to verify your tax resident status.
• Investment restrictions: South Africa might limit your ability to invest in particular South African assets.
• Transfer problems: You’ll need the Non-Resident Confirmation Letter from SARS SARS to make international transfers from South Africa. With it, you could avoid problems with things like accessing an inheritance or completing a property sale.

Read more: Clarifying resident vs. non-resident tax status for South African expats.

FinGlobal: tax emigration specialists for South Africans

Long story short? It’s essential to clarify your tax status with SARS. The sooner, the better. If you’re unsure of your tax residency status, FinGlobal can assist. We offer a full suite of cross-border financial and tax services that make life easier for expats, including:

• Tax emigration
• Tax clearance
• Tax refunds
• Retirement annuity withdrawal
• International money transfers
• Exchange control

To get started with our trusted, convenient services, simply leave us your contact details below or email info@finglobal.com with your queries.