South African expatriates who ignore their tax obligations will soon find themselves facing the wrath of the taxman in the upcoming tax season.

SARS has urged taxpayers including expats (South Africans residing outside the country) to urgently review their tax compliance status or stand the risk of facing major penalties or even jail time.

Originally, individuals were taxed according to a source-based tax system but from 1 March 2001 it has changed so that individuals will be taxed according to a residence-based tax system. In simpler terms, since March 2001 tax residents will be taxed on all their worldwide income (local and foreign), while non-residents will be taxed on their South African sourced income only.

What does tax resident mean?

 If you are seen as a South African tax resident, this means that you will be taxed on all your income (local and foreign).

While you may be living in another country, if you spend a significant amount of time in South Africa or have assets and family based in the country, you could still be considered a South African tax resident.

You will need to confirm if you are seen as a tax resident to ensure that you are not under-declaring your income and to avoid unnecessary penalties and interest on top of your tax due to SARS.

There are two steps that you must follow to check if you classify as a tax resident or not:

Step 1: The Ordinarily Resident Test

 You will be seen as an ordinarily resident if your ordinary residence is in South Africa where you return to after travelling. You can still be regarded as being a tax resident in South Africa regardless of the amount of time you have spent outside the country.

Some of the factors SARS will consider to decide on your residency status include:

• Your nationality and your visa status in the foreign country. Type of visa you have to go to the foreign country
• Proof of permanent residence in the foreign country, if applicable
• A certificate of tax residence from the foreign revenue authority, if applicable
• Details of South African properties and business interests you may own
• Details of your family and location of your personal belongings
• Details of your social interests e.g. gym contract, recreational clubs and societies you belong to
• Frequency and reason for visits back to South Africa

If you are not seen as an ordinarily resident, you may still be seen as a South African tax resident by means of the physical presence test, please proceed to step 2.

Step 2: The Physical presence test

If you are not seen as a resident by the ordinarily resident test, you may still be seen as a resident by the physical presence test. This test is based on the amount of time you physically spend in the country.

You will be regarded as a South African tax resident if you meet all of the criteria below:

• If you spent 91 days or more in South Africa in the current year of assessment; and
• If you spent 91 days or more in each of the preceding five years of assessment; and
• If you spent over 915 days in total during those five preceding years of assessment

You need to meet all three of the above requirements to satisfy the physical presence test. It is important to note that the tax residency by the physical presence can be broken by leaving South Africa for a stretch of 330 full days.

If you are unsure, please check out TaxTim’s handy decision tree to see if you qualify as a tax resident.

The effect of a Double Taxation Agreement (DTA)

A DTA is an agreement between two countries which is set up to avoid the same income being taxed twice i.e. South Africa and the foreign country. It also provides requirements that must be fulfilled to be able to confirm in which country you qualify as a tax resident when you are in the situation that you are seen as a dual resident.

This means if you are deemed as a South African tax resident by means of the ordinarily residency test or by the physical presence, you may not be regarded as a South African tax resident if it is determined that you are resident of another country when applying a DTA.

For example: If you have been working in America for the past ten years, you may realise that you are a dual resident because you are a tax resident in both the US and in South Africa. This is where the DTA comes in handy to check the requirements of the DTA that must be met to confirm in which country you are tax resident to avoid double taxation.

The beginning and the end of your residency

 It is important to take note that the start dates and end dates are a bit different from being an ‘ordinarily resident’ or being a resident in terms of the physical presence test.

 It is important to note, that if you are an ordinarily resident in South Africa but were physically absent for a continuous period longer than 330 days, you will still be seen as an ordinarily resident of South Africa.

How do I inform SARS that I have ceased to be a resident?

The moment you ceased as a South African tax resident, you are required to inform SARS of the change of your tax residency. This is to ensure that you are taxed as a non-resident and no longer as a tax resident.

You have to inform SARS by:

1. Updating your RAV01 (Registration, Amendments and verification form) on eFiling to disclose that you ceased to be a tax resident under the Income Liability Details section. Click here for the necessary steps to take to update it accordingly.
2. A case will be created by SARS and they will issue you a letter to request supporting documents that you will need to submit to them through SARS eFiling or on their online query system.

What must I keep in mind when I cease to be a tax resident?

Once you ceased to be a South African tax resident, you will need to take note of the following:

• It will be deemed that you have disposed of all your worldwide assets, excluding immovable property situated in South Africa for capital gains tax purposes. This means you may have tax due on deemed capital gains on your foreign assets.
• That you will no longer be taxed on your worldwide income but only on your South African sourced income. This means you only have to declare income from South African sources on your tax return to SARS.

What documents do I need to submit to SARS?

When you have informed SARS that you ceased to be a South African Tax Resident, SARS will request supporting documents from you to prove that you are no longer a South African tax resident. The supporting documents will depend on the basis you ceased to be a South African tax resident.

Be warned – SARS may not make this easy for you! If you don’t submit sufficient proof, SARS will decline your declaration and you will still be taxed as a South African tax resident.

You will need to submit the following standard documents with the declaration:

• The signed declaration indicating the basis on which you qualify (i.e. by ceasing to be ordinarily resident, or by way of the physical presence test or due to the application of the DTA)  
• A letter of motivation with detailed description of the facts and circumstances to support the disclosure that you have ceased to be a tax resident.
• A copy of your passport/travel diary

In addition to the standard documents, if you indicated in your declaration that you ceased to be Ordinarily Resident, you will also need to submit the following:

• The type of visa on which you have gone to the foreign country
• Proof of residence in the foreign country
• Tax residence certificate from the foreign revenue authority or a letter from them that indicate that you are regarded as a tax resident in that country, if applicable
• Details of the South African property that you own, if applicable (also provide the purposes for this property)
• Details of any South African business interest (e.g. investment and employment), if applicable
• Details of your family. You will need to indicate if any family members are in South Africa and the reason thereof
• Details of your social interests (e.g. gym contract, recreational clubs and societies)
• Location of your personal belongings
• Details of any return visits to South Africa, the frequency thereof and the reason for undertaking such visits

If you indicated in your declaration that you ceased to be a resident by way of the Physical Presence Test, there are no additional documents to the above standard list of documents.

In addition  to the standard documents, if you indicated in your declaration that you ceased residency due to a DTA (Double Tax Agreement), you will need to submit:

• Tax residence certificate from the foreign revenue authority or a letter from them that indicates that you are regarded as a tax resident in that country.

Is there a chance that SARS will decline my declaration?

Yes, SARS can decline the declaration if one of the following conditions apply:

• You did not satisfy the requirements to cease as a tax resident; or
• You are not able to provide SARS with the relevant supporting documents thereof.

I declared that I ceased to be a tax resident a while ago - how do I confirm this?

If you want to confirm that your tax residency status is correct or proof thereof, you can submit a request by send a letter to SARS.

The letter should contain the following:

• Details to the request;
• Basis on which you have ceased to be a tax resident; and
• Date and manner in which SARS has previously been informed