SA tax emigration: Everything you need to know

Understanding tax emigration

You may have left South Africa, but that doesn’t mean that you’re considered a non-tax resident according to the government. Understanding your tax status is key to avoiding unnecessary tax and penalties.

Firstly, there is a difference between being a taxpayer and tax resident. A South African taxpayer is someone who earns SA-sourced income and has to disclose it to SARS, whereas a South African tax resident is someone who has to pay SA tax on their local and worldwide income.

Tax emigration means that you report to SARS that your tax status has changed to non-resident for tax purposes. 

• If you live in South Africa, are a tax resident and earn money from overseas, you must pay tax on that income in South Africa. 
• If you are tax resident in South Africa, but live and work overseas for longer than 183 full days in any 12-month period (with at least 60 of those days being consecutive), you do not need to pay South African tax on that income until it exceeds R1.25 million. Income earned over and above that amount will be taxed in South Africa. 
• If you are not a South African tax resident, you only have to pay South African tax on the income you earn in South Africa (e.g. from renting out a South African property or dividends from a South African company).

How SARS determines your tax status

When determining your tax status, SARS looks at various factors through two different mechanisms:

The ordinarily resident test

SARS’s test is completely subjective and dictates that you’ll be deemed a tax resident if your permanent home is considered to be in South Africa. Some of the criteria that SARS considers when determining whether you are ordinarily resident include:

• If you live in a place in South Africa with some permanence
• If you regularly return to a place in South Africa
• If you have a permanent home in South Africa
• If you have belongings in storage in South Africa

If you fit within the parameters, SARS will determine that you usually reside in South Africa, even if you frequently travel out of the country.

The physical presence test

If you are deemed ordinarily resident in South Africa, SARS will then conduct the physical presence test, which looks at how much time you spend in the country. If you intend on proving non-tax resident status, you could be caught by the number of days you spend in South Africa. The test will attempt to measure physical presence in South Africa for a period, or periods, exceeding:

• 91 days in total during the tax year under consideration
• 91 days in total during each of the five tax years preceding the one under consideration 
• 915 days in aggregate during the above five preceding tax years – which amounts to an average of 183 days a year

If you meet any of these measures, you will be deemed tax resident. 

Double Taxation agreements

If you are determined to be a tax resident in South Africa, Double Taxation Agreements (DTAs) will prevent you from having to pay tax on the same income in both South Africa and another country.

South Africa has DTA agreements with a number of countries (for example Australia, the UK and the USA) that either exempt income from being taxed in both countries or stipulate reduced rates.  

When should a tax status change be reported?

There are a few time-sensitive factors to consider when reporting your change in status to SARS:

• Tax emigration must be reported in the tax return covering the period you alter your status. 
• Given tax year cycles, this might mean you notify SARS of the change well after the actual event. However, it’s important to be aware of how changing your status will retroactively impact you.
• Alerting SARS of your change at a later date allows them to demand you pay tax on the asset base you have at the time of your change notification, not the date it actually happened.
• When you change your tax status, you’ll be subject to Capital Gains Tax (CGT) on your local assets. This is calculated according to how much your assets are worth on the day you become non-resident. In essence, SARS works out this tax as if you sold your assets (excluding immovable property situated in South Africa) on your last day of being a tax resident and bought them back on your first day of being a non-tax resident.
• When you alter your tax status, you will have taxes due on the day you leave, even if the tax year hasn’t ended. If you do your return at a later date, SARS can claim a late penalty.
• Following your status being changed to non-resident, you will no longer need to submit a South African tax return, unless you still have assets in the country that continue to generate streams of income.

Consult with the experts to tax emigrate from South Africa

Changing your tax residency does not affect your citizenship status, but merely revises your residency for cross-border transacting purposes. Going through the process is necessary and can result in some simplification of your financial affairs. However, it can be complex and, as such, many choose to have a professional service take care of everything on their behalf.

We recommend seeking professional advice before attempting to alter your tax status. We are South African tax emigration specialists who can assist in managing the entire process from end-to-end. Email us on taxsa@sableinternational.com or give us a call on +27 (0) 21 657 2120.