You will meet the requirements for being considered a tax resident in South Africa if either of the following applies to you:

You are “ordinarily resident” in South Africa; or
You are “physically present” in SA in a specific tax year, even if you are not ordinarily resident in that year.

To classify as a non-resident for tax purposes in South Africa, you must ensure that you do not meet the above requirements or otherwise meet the requirements to be considered exclusively tax resident of another country under a tax treaty.

The South African Revenue Service (SARS) Interpretation Note 3 “Resident: Definition in relation to a natural person – ordinarily resident” lists the factors taken into consideration by SARS when determining whether an individual is ordinarily resident for tax purposes. These factors include the individual’s most frequented, fixed place of residence, as well as their place of business and private interests, such as sports or social clubs, family ties and places of worship.

What does it mean to be “physically present” in South Africa? It means that even if you do not meet the requirements of the “ordinarily resident” test, you can still qualify as a tax resident if you have had feet on South African soil for more than 91 days in a specific tax year and in each of the five prior tax years, in addition to a total of more than 915 days in those preceding years.

The only way to avoid paying tax to SARS on your worldwide income is to show them that you are no longer a tax resident. While it is possible to break your tax residency ties with South Africa, this isn’t as easy as it sounds. Once you are no longer considered a tax resident you won’t have to pay expat tax, but once you’re considered a non-resident for tax purposes, you will be liable to pay Capital Gains Tax from the day on which your residency ceased.

Expats that are relocating to or from South Africa should know that it also has tax treaties with several countries, which can help avoid double taxation in your home country. Some of the 81 countries that South Africa has double tax treaties with include the United Kingdom, the United States, Japan, Sweden, Thailand, Australia, Saudi Arabia and the UAE.

In the absence of treaty provisions, unilateral relief (in certain circumstances) is available on foreign-source income in the form of a R1,25 million exemption for foreign employment income or a credit for foreign taxes paid (limited to the lesser of the actual foreign tax liability and the South African tax payable on the foreign income).

If you decide on changing your tax residency status, it will mean submitting an application and making the appropriate disclosures to SARS. Each case is then closely evaluated based on its own merits.

South African expats could face new exit tax

South Africans who decide that they would like to move overseas may soon find that they will have to pay out more than they were hoping to, as an ‘exit tax’ has been proposed to come into effect from next year (2022). Under existing laws, there are charges already in place for those leaving the country on a permanent basis. However, the likely additional exit tax would take money from the retirement savings of private individuals. In the Treasury’s latest published Draft Tax Bills, which incorporates the tax proposals made in the 2021 Budget, the amendment proposes to tax retirement fund interests of individuals when they cease South African tax residency.

Proposed amendment

The draft Taxation Laws Amendment Bill (TLAB) proposes, in addition to the existing exit charge, to tax the value of the interest in a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund. It will create a new section in the Act where an individual will be deemed to have withdrawn from their retirement fund on the day before they cease residency.

Payment of the tax will be deferred until the amount is actually receivable from the fund. The tax will be handed down on the value of the interest on the day before the residency is ceased and will be worked using the lump sum tax tables at the time of payment.

As public commentary to these amendments are now past the due date we await the final outcome from Treasury.

Tax practitioners should be aware that they have full risk sign-off from expatriates, as expatriates may quickly place the blame on them when things go wrong.