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Saffers abroad need to confirm their non-resident tax status with Sars

For thousands of South Africans looking abroad for greener pastures, and for those who’ve already left, the SA Revenue Service is not far behind.
The process of becoming a non-tax resident in South Africa is not automatic. Image: AdobeStock

William Louw, Sable International SA tax director, says he’s seldom seen such a flood of South Africans looking to emigrate.

“I’m booked solid for weeks,” he says. “The reasons people want to leave vary, but at the bottom of it all they want a Plan B. They see the country deteriorating, and believe it might get worse, and they are concerned about safety, education for their kids, and for some it is just that there are better opportunities abroad.”

Emigration is a huge decision, with serious financial implications. Living abroad has a major impact on how much tax you pay and to which country that tax is paid. Your tax residency status determines how you are taxed in a particular country.

South Africans who have left the country must now obtain a letter from the South African Revenue Service (Sars) to confirm their tax non-residency status, which is only issued to those permanently leaving the country.

To apply for the letter, you must complete the tax emigration process through Sars.

Those living abroad without this letter could find themselves obliged to report their global earnings every year to Sars.

This also creates problems for those living abroad and drawing living annuities from a South African fund.

“A lot of people left in the 1990s and are well past retirement age, yet no longer have SA passports. The Sars eFiling system is linked to the ID document that Sars has on file, which may no longer be valid. We are having to assist several clients to regularise their status,” says Louw.

Understanding tax residency

Whether you reside in South Africa or abroad, you will be subject to income tax.

There are two concerns: where do you pay taxes and how do you avoid paying more than one tax on the same income?

If you reside in SA, you will most likely be considered a resident here for tax purposes (though there are some rare exceptions). South African tax residents must pay Sars taxes on their income earned in South Africa along with foreign income, in instances where that income exceeds a certain amount.

Leaving South Africa does not automatically classify you as a non-tax resident. If you are a tax resident living overseas, you can be taxed on foreign income that exceeds the R1.25 million threshold. You may be affected by double taxation as well, warns Louw.

However, the process of becoming a non-tax resident in South Africa is not automatic. The only way to change your tax status is to formally undergo the relevant legal processes through Sars.

Understanding double taxation agreements

Tax returns are always to be filed in the country where you are not a tax resident first. It is possible that, in certain instances, a particular amount may be taxed twice, since tax systems differ from country to country. Double taxation can however be alleviated through various Double Taxation Agreements (DTAs).

By disclosing the tax which you will pay in the country that you are tax resident in, you can usually avoid double taxation.

This is where advice from a professional tax practitioner familiar with international tax is crucial.

Benefits of ceasing your South African tax residency

The benefits of tax non-residency:

  • You will only be taxed on income sourced from South Africa (unless the DTA overrides the normal laws).
  • Only fixed property located in South Africa and assets of permanent establishments will be subject to capital gains tax.
  • International remittances are exempt from taxation. This is due to the tax being payable when the income is earned or the assets sold, not when cash moves.

Importance of having a Sars non-residency tax letter

If you are tax resident in South Africa, you are legally required to submit tax returns to Sars every year. You must declare your worldwide earnings, both local and foreign, and then claim any exemptions or tax credits on foreign earnings. If you do not formally note yourself as a tax non-resident, Sars will automatically classify you as a tax resident in South Africa.

The non-residency tax letter is important for three reasons:

  1. The letter is the only way to confirm that Sars has agreed that your tax status has changed.
  2. An emigration tax clearance is now required to get funds paid abroad if withdrawing from your retirement funds prior to retirement.
  3. A non-residency tax letter is used when a non-tax resident needs to take an annuity or salaried income out of South Africa to transfer abroad for the banks. In October 2021, legislation changed for non-tax residents intending to claim a living annuity while living abroad. To transfer funds from South Africa to an overseas bank account, an application for a good standing tax clearance certificate must now be made. Previously, all you had to do was show that you had financially emigrated and the fund could make an offshore payment. Now, the process of accessing your living annuity offshore has become more complicated, particularly for elderly non-tax residents and those who have been out of the country for more than 10 years. (See: How to access your SA living annuity offshore – an eFiling guide).

Louw notes that once you are deemed a non-tax resident by Sars, the Reserve Bank no longer allows you to use your Single Discretionary Allowance to transfer funds out of SA. You have to prove you have a non-residence letter from Sars or use your Foreign Investment Allowance (FIA).

“It is important to take the necessary steps, knowing that Sars does not automatically issue the letter of tax non-residency (as they promised they would),” says Louw.

“Know your tax status and act accordingly so that you are not negatively affected.”

Sable International provides comprehensive tax services and advice for South Africans at home and abroad and anyone with South African income. It can be reached at taxsa@sableinternational.com or by phone at +27 (0) 21 657 1517.

Brought to you by Sable International.

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