Emigrating from South Africa? Here’s why you must inform SARS

Where you pay tax, and the amount you pay, is determined by your home country. In cases where you earn foreign income, it also depends on any Double Taxation Agreements (DTAs) that may exist with other countries. This protects you from having to pay tax twice on the same income. 

The South Africa tax system is residency-based. This means that if you are considered a tax resident in South Africa, you should (in most cases) be paying your tax to SARS, even on worldwide income. If you’re living in South Africa, that’s uncomplicated. However, tax residency isn’t the same as physical residency and it is possible to remain a tax resident of South Africa while living somewhere else. 

How SARS determines tax residency

SARS conducts two “tests” to determine your tax residency status: How physically present you are in South Africa and whether there are indications that you might be “ordinarily resident” in South Africa, even while living and working overseas. 

If you’ve emigrated from South Africa and haven’t spent more than three months in any of the past five years in the country, you will not be considered physically present in South Africa. However, the ordinarily resident test is far more subjective. SARS can look at factors like where your family lives, where your belongings are stored and where you own a home.

If SARS determines that you are non-resident in South Africa for tax purposes, you will only be liable to pay tax in South Africa on income earned in South Africa and not your worldwide income. 

If you are determined by SARS to be tax resident in South Africa, but you spend more than half the year overseas, for two months or more in a single period, you are exempt from paying South African tax on that worldwide income up to a threshold of 1.25 million. 

This means that many South Africans who have emigrated, but earn under the threshold, do not see a point in informing SARS when they become tax resident in another country. While it may seem like a good way to avoid paying exit tax (the Capital Gains amount that becomes due when you tax emigrate), putting off tax emigration can cause much bigger problems down the line.

SARS knows more than you might think

When you leave South Africa permanently, you’re meant to inform SARS in your next tax return. Until you do this, SARS has the right to assume that you are still a South African tax resident. 

Most banks report their cash flows to SARS. When SARS sees a South African ID number and tax number that’s not correctly coded or inactive, SARS can then demand you pay tax owed. These “jeopardy assessments” can happen at any time in the tax year, without notice, as they’re usually triggered when tax authorities believe you are engaging in tax evasion. 

To avoid paying this amount, you will need to lodge a return to override it, including supporting documents that prove that you are no longer tax resident in South Africa. If this appeal is successful, you will then become liable for exit tax and penalties for not informing SARS when you left and paying your exit tax at that stage. 

Getting your RA out of South Africa

On 1 March 2021, the process for transferring a retirement annuity or pension out of South Africa changed. Now, if you want to transfer your retirement annuity out, you will need to prove to SARS that you have been tax resident in another country for three years. 

If you have already tax emigrated, then this should not cause any issues. However, if you have not tax emigrated, SARS will reject your application and most likely start an audit, which means you lose the opportunity for voluntary disclosure and will likely have to pay penalties.

Double (taxation) trouble 

To avoid tax evasion, money laundering and other unsavoury practices, tax authorities around the world communicate with each other. If SARS suspects you’re not paying the tax you should, they will approach the tax office in your new country of residence. 

This tax authority might believe that you intentionally avoided changing your tax residency status in South Africa to take advantage of a Double Taxation Agreement and get out of paying tax that should have been owed to them. In which case, they’ll audit you. 

Even if you have been paying all tax owed, you will still have to spend a lot of time and effort on unnecessary admin to prove so. And if you haven’t been paying the tax you should? You’ll then be liable for even more penalties. 

The future of tax emigration in South Africa

In future, it could become more difficult for you to make things right if you didn’t tax emigrate when you left South Africa. 

Currently, you’re able to confess to SARS under the Voluntary Disclosure Programme (VDP). If you come forward to admit that you have been non-compliant before SARS discovers it for themselves, you don’t have to pay penalties. 

Through this programme, we have been able to help our clients tax emigrate without consequences, even when they’ve lived outside of South Africa for years.

In addition, as things currently stand, a tax professional can help you provide proof of the date that you left South Africa, so that the Capital Gains Tax that you owe is based on the asset base you had at that time and not your current asset base. This is referred to as “backdating” a tax emigration. 

There is widespread speculation among tax practitioners that SARS is looking to remove the ability to “backdate” a tax emigration. In other words, your tax emigration will only be effective from the date you declared it and you will have to pay Capital Gains Tax on your current asset base, which might be worth more than when you left South Africa, especially if you’ve been gone a while.

Government also said, in the 2021 South African Budget, that it will be reviewing the voluntary disclosure provisions. There is no indication yet of what might change about the programme, but there is no guarantee that you will still be able to use it to avoid paying penalties in the future and the longer you avoid tax emigrating, the more of these penalties might build up. 

The tax process you should follow when emigrating from South Africa

So what is the correct process to follow? If you haven’t left South Africa yet, you should plan ahead to make sure that you report your tax status change with your next tax return. This might be several months after you’ve actually left, so make sure you keep documentation to show when you left South Africa. For example a tax residence certificate from your new country of residence and proof of a foreign address. 

It’s a good idea to calculate and plan ahead for the amount of Capital Gains Tax you will have to pay. 

You can also prepare ahead for the residency tests that SARS will conduct by making sure that you spend enough time outside of South Africa and that you don’t have remaining ties in South Africa that could indicate you’re ordinarily resident in the country. 

A South African tax professional that specialises in cross-border situations will be best situated to guide you through this process and make sure that your tax status change goes smoothly. 

If you’ve already left South Africa and have not informed SARS that you are no longer tax resident in the country, we recommend that you do so sooner rather than later while you are still able to make use of the VDP.

A tax professional will currently be able to help you backdate your tax emigration without penalties, pay exit tax on the asset base you had when you left South Africa and make sure you’re in good standing with SARS, but we don’t know how long this will remain possible.

We can assist you with changing your tax status and making sure your tax affairs are in order with SARS. For peace of mind when it comes to your South African tax affairs, get in touch with our South African tax team at taxsa@sableinternational.com or call us on +27 (0) 21 657 1517 (SA) or +44 (0) 20 7759 7560 (UK)