It’s never easy packing one’s bags for a holiday; it’s even harder when you’ve decided to move abroad. This decision means a long list of administrative duties that need to be done before you can embrace the new chapter of your life.
One key administrative task that one must get done is ceasing their residency with South African Revenue Services (Sars) to avoid any tax penalties. The question is how you go about starting this process.
To determine whether an individual ceases to be a tax resident is based on the way the individual has been a tax resident in South Africa. If the taxpayer has been an ordinary tax resident, Sars applies a factual enquiry on whether the taxpayer’s subjective intention is to cease to be an ordinary resident and no longer make South Africa their real home. Some of the factors applied to determine whether a taxpayer has ceased to be a tax resident are:
- The type of visa on which a person has gone to the foreign country (e.g., study visa, etc)
- Proof of permanent residence in the foreign country (if applicable)
- A certificate of tax residence from the foreign revenue authority or a letter from the authority that indicates that you are regarded as a tax resident in that country (if applicable)
- Details of any business interest (e.g., investment and employment) that you may still have in South Africa
- Details of any return visits to South Africa, their frequency, and the reason for undertaking such visits.
If you classify as a resident by virtue of the physical presence test, then you will cease to be a resident when you are physically outside South Africa for a continuous period of at least 330 full days. You can also cease to be a tax resident in South Africa if you’ve become a tax resident of another country through the application of a double tax agreement.
There are two channels that one can use to inform Sars of their intention to cease being a taxpayer, they are:
- The Registration, Amendments and Verification Form (RAV01) available on eFiling or at a Sars branch.
- Capture the date of leaving South Africa on the income tax return (ITR12) tax return.
The date at which you declare to Sars the change of your tax residency will impact the basis on which you will be subject to tax in South Africa and how your returns will be assessed going forward. The year you declare to Sars the change of your tax residency could also result in a possible deemed capital gains tax (CGT) depending on the type of assets you held and where they were located at the time of declaration.
Whether you are declaring to Sars via the ITR12 or RAV01 form it will request certain supporting documents to substantiate your declaration. The standard required documents with all declarations are:
- The signed declaration indicating the basis on which you qualify;
- A letter of motivation setting out the facts and circumstances in detail to support the disclosure that you have ceased to be a tax resident;
- A copy of your passport/travel diary.
Based on the reason you have ceased your tax residency in South Africa, you will have to supply additional information:
1. Cease to be an ordinarily resident:
- The type of visa on which you have gone to the foreign country.
- Where you have already taken up permanent residence in the foreign country, submit proof thereof.
- A certificate of tax residence from the foreign revenue authority or a letter from the authority that indicates that you are regarded as a tax resident in that country (if available)
2. Cease by way of the physical presence test:
- Only the standard requirements must be supplied.
3. Cease due to the application of Double Tax Agreement
- A certificate of tax residence from the foreign revenue authority or a letter from the authority that indicates your status as a tax resident in that country.
If you do not meet the criteria for ceasing to be a tax resident or cannot provide Sars with all the relevant materials or the material is incorrect then your application will be denied.
It’s never easy saying goodbye to family and friends you’ve known since calling South Africa home but don’t let the fear and the excitement of a new beginning stop you from sorting out all your documentation related to ceasing your tax residency.
Disclaimer: We are not tax advisors and recommend that you consult your tax advisor or tax practitioner with all matters related to tax.