Checking on your tax residency status

Following the change by the South African Reserve Bank (“SARB”) on 1 March 2021 to transfer the monitoring of the emigration process to the South African Revenue Service (“SARS”), we have seen a change in the SARS processes in respect of their records of the tax resident status of a taxpayer.

If you are on record as a tax resident with SARS, you are subject to tax on your worldwide receipts and accruals whereas a non-resident is only subject to receipts and accruals from a South African source or a source that is deemed to be in South Africa.

The concept of tax residency is complex and is not determined solely by the fact that you live outside of South Africa and the date you ceased to be tax resident is not necessarily linked to the date that you left South Africa to live offshore, although these can be a factor.

Having financially emigrated through the SARB prior to 1 March 2021 also has no bearing on your tax residency status, which means, that you could have ceased to be a tax resident many years ago without having notified SARS.  Having obtained a tax clearance certificate from SARS as part of a SARB application does not mean that SARS is satisfied that you have ceased to be tax resident in South Africa and that SARS has updated your status accordingly.

It is important to note that ceasing to be tax resident may have triggered a capital gains tax event, where, should you have held local and foreign qualifying assets, you would have been deemed to have disposed of the qualifying assets.

Up until about 2019 there was also no formal process to inform SARS of your change in tax residency status. SARS have now updated their e-filing platform to allow a taxpayer to update their tax residency status as part of the registered details of a taxpayer.

It is, therefore, important for us determine your tax residency status if you are living abroad or have financially emigrated to confirm whether your residency status needs to be updated on SARS e-filing.

The onus of proof in determining your taxpayer’s residency status lies with the taxpayer.  If SARS are of the view that you cannot discharge this onus, they will regard you as a tax resident and will treat you accordingly. 

It is important for us to determine:

• Whether you ceased to be a tax resident in South Africa?
• Was tax due to SARS at the time that you ceased to be a tax resident?

Depending on your facts and circumstances, determining your tax residency status, the effective date of your change in status, and identifying potential capital gains tax events may be complex.

The process requires the taxpayer to submit an elaborate roadmap to support their claim that they are not resident for tax purposes and must be backed up by prescribed documentation and authoritative evidence.

Updating your status as non-resident with SARS and any related advisory, is separate to the preparation and submission of your annual income tax return.

If you are uncertain about your tax residency status or of the view that you have ceased to be a tax resident of South Africa, please get in touch with us to engage on the matter.

Not updating your tax residency status with SARS exposes you to tax implications in South Africa in respect of foreign income and foreign assets.

29/08/2022