3 questions SA expats must ask about tax residency

Access to current information has become the saving grace for expatriates.
Image: AdobeStock

Access to current information has become the saving grace for expatriates. However, with the advent of social media platforms, came an accompanying surge of opportunistic advisors who unknowingly, and sometimes knowingly, mislead vulnerable expatriates in their quest for clarity, and in so doing, potentially harm their relationship with the South African Revenue Service (Sars).

Gone are the days of relying on the good intent of others, especially where it could cause you to venture into unknown waters. It is difficult to sift through the abundance of advice doing the rounds on social media platforms, which has forced expats to look for ways to spot charlatans. But how can uninformed taxpayers possibly discern between what is good advice and what is bad advice?

Chat groups and pages for Saffas abroad

The following three points are often where unqualified consultants stray from the cold hard facts of expat tax and give out erroneous advice. Having a bit more understanding of these areas will equip you with enough information to sniff out the dodgy advisors and to save yourself unnecessary hassles.

1. DTA vs financial emigration

Where taxpayers insist on returning to South Africa in the future, many tax practitioners advise them to apply to temporarily cease their tax residency under a Double Tax Agreement (DTA). While this is sound advice, the practitioner then proceeds to do a financial emigration, which is an entirely different, and permanent, non-residency process with far-reaching consequences.

Upon their return to South Africa, the individual could face an uncertain future with Sars. Depending on how long the expatriate have been outside of the country, the financial emigration process will have to be undone and the taxpayer will face penalties or fines based on the extent of their non-compliance to tax laws while working abroad.

2. Ticking a box on your tax return

Another common occurrence is where taxpayers clearly have no right to claim non-residency, yet their advisor suggests that making this declaration or ticking the non-resident box on their tax return will “make it all go away”. This type of conduct should set off alarm bells.

South Africans can no longer reason that any legal process can be this easy in practice. At no point should it be assumed that you are automatically non-resident. Simply being outside of South Africa or breaking the residency tests does not merit the self-issuance of a non-resident status. Ceasing one’s residency or claiming tax relief will always be a formal declaration process, and the onus of proof in both cases will always rest on you, the taxpayer, to convince or prove to Sars that you want to cease your tax residency or claim tax relief under a DTA.

3. Article 4: objective factors present, intentions and the residency test

Under a DTA, or when preparing to do a financial emigration, one of the most important factors is to ascertain whether you qualify as a resident in the host country. This is never a clear-cut matter and often creates a lot of confusion. There are numerous things to consider and the slightest change in your circumstances, could drastically alter your tax residency status.

For instance, you would have to establish in which country you are ordinarily resident, or  (if you only temporarily lived in South Africa and qualified as a resident) you will have to conduct a “physically present” test to see if you were outside of South Africa long enough to qualify for non-residency. Furthermore, the objective factors present and your intent when working abroad, all hold sway over your residency. If your family lives in South Africa while you are working abroad, or you own a South African property which is awaiting your return as your ‘home’, then your interests are still within the borders of the Republic. This could adversely affect your ability to claim tax relief.

Many tax advisors do not look at these finer, more technical aspects, yet lead taxpayers down a dangerous path by offering quick solutions to weighty matters. By carefully working through the criteria mentioned in Article 4 of the DTA between South Africa and the host country, you and your tax consultant will find the best route to follow.

Don’t look to Sars for help

Taxpayers can no longer rely solely on Sars for the appropriate support or guidance when filing their returns, even less so when they have far more complex cross-border tax queries. Sars is driven by their interpretation of the tax laws, thereby merely issuing interpretation notes on the laws they administer to provide clarity for taxpayers.

However, Sars may be biased in favour of protecting their own interests, which is to collect revenue through taxation. They have budgets, targets and deadlines, like any other business. As a consequence, their service offering resides within the ambit of their bottom line. This was confirmed in the case of Marshall and Others NNO v Sars (CCT208/17) [2018] ZACC 11, where the Constitutional Court ruled that courts should hold the final interpretation of laws, not the government entities that tabled the laws. They concluded:

“Why should a unilateral practice of one part of the executive arm of government play a role in the determination of the reasonable meaning to be given to a statutory provision? It might conceivably be justified where the practice is evidence of an impartial application of a custom recognised by all concerned, but not where the practice is unilaterally established by one of the litigating parties. In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided.”

This judgment indicates the care taxpayers should apply when tending to their own tax affairs. The only thing they can truly rely on as a guide is the law, along with a tax consultancy who is well-versed in the legal interpretation of said laws, to provide clarity on how the laws will affect them based on their unique circumstances – not necessarily the person with the most convenient answer.

Thomas Lobban is legal manager, Cross-Border Taxation at Tax Consulting SA; and Victoria Lancefield is general manager, Financial Emigration & Tax Residency at Tax Consulting SA.

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