Tax Emigration

Understanding Tax Emigration

If you're a South African living abroad, understanding your tax residency status is essential. Your tax residency determines how the South African Revenue Service (SARS) taxes your income, both within the country and overseas. Missteps in managing this can lead to non-compliance, including unnecessary penalties, double taxation, or even criminal implications in some cases.

Let’s break it down into simple yet precise terms.

Tax Residency vs. Immigration Residency

Many people confuse tax residency with physical residency, but these are distinct concepts:

• Tax Residency: Determined by your intention regarding South Africa – is it your permanent home? This looks at your ties to South Africa, such as family and assets. Alternatively (and only where South Africa is not your permanent home), you can be seen as a resident for tax purposes where you spend enough time in South Africa over 6 consecutive tax years.

  
  

• Immigration Residency: Based solely on your immigration or citizenship status in South Africa. This does not have an impact on your tax residency status. Just because you are living elsewhere does not mean that you are automatically tax non-resident in South Africa. At the same time, just because you surrender your South African citizenship does not mean you are automatically a tax non-resident.

Are You a Tax Resident?

In determining tax residency status, South African tax law uses a two-pronged approach to determine your tax residency: the Ordinarily Resident Test and the Physical Presence Test.

1. Ordinarily Resident Test

You are considered “ordinarily resident” in South Africa if it is the place that you regard as your true home, despite living abroad temporarily. This test involves a look at your overall circumstances and indicators for being “ordinarily resident” include:

• Having significant assets and property in South Africa (compared to other countries),

• Having family (especially a spouse and/or children) in South Africa,

• Visiting South Africa very frequently or for long periods each year, and/or

• Not having any plan or ability to reside elsewhere in the long term. It is important to know that no single indicator is decisive, and this must still be weighed against the intention of the taxpayer concerned.

  
  

2. Physical Presence Test

This test applies if you’ve spent substantial time in South Africa over the past five years. SARS calculates this as:

• More than 91 days in the current tax year,

• More than 91 days in each of the preceding five tax years, and

• More than 915 days over the last five years altogether. Failing the Physical Presence Test or cutting ties with South Africa may exclude you from being a tax resident, but it’s not automatic. SARS requires clear documentation to justify non-resident status

How SARS Determines Your Tax Obligations

South Africa follows a residence-based tax system, meaning:

• Tax Residents: Taxed on worldwide income.

• Non-Residents: Taxed only on income sourced within South Africa.

If SARS considers you a tax resident, all global income must be declared, even if taxed in another country. This makes accurate tax filings critical to avoid penalties or audits.

This is where “ceasing tax resident” or “tax emigration” or “financial emigration” come into play.

Tax Emigration

In years gone by, someone permanently leaving South Africa was required to inform the South African Reserve Bank (SARB) of their emigrant status. This was combined with a disclosure to SARS that a person was no longer a tax resident, and it was affectionately called “financial emigration”. This has since been phased out.

Now, only a disclosure to SARS is required to be considered a tax non-resident. While different firms will use different terms, like “tax emigration” or “financial emigration”, these all mean the same thing – ceasing tax residency. And no, you do not have to sell your house in South Africa to be a tax non-resident.

SARS now considers you a tax non-resident if you have a Notice of Non-Resident Tax Status from SARS. If you don’t have this, it is worth having your status checked for you. This also translates to how the exchange control regulations in South Africa will apply to you.

Double Taxation: A Common Pitfall

Living abroad often exposes South Africans to double taxation:

1. Taxation in the host country, and

2. Taxation by SARS on the same income.

To mitigate this, South Africa provides relief in the form of a tax credit or deduction, which provide some protection against double tax. These rules are complex and only apply where you already pay tax abroad.

To further protect taxpayers, South Africa also has Double Tax Agreements (DTAs) with many countries. These treaties determine which country has the primary taxing right – but also allocate tax residency where you are seen as a tax resident in two countries. This is another way that you can cease tax residency.

Smart Money, Wise Move

Navigating tax laws as a South African living abroad requires understanding your tax residency, complying with SARS regulations, and planning strategically to avoid pitfalls like double taxation. With the right knowledge and guidance, you can protect your income and maintain financial peace of mind, no matter where you call home.

Speak to a trusted tax consultant today to ensure your cross-border tax matters are handled with care and expertise.