A South African becomes a tax non-resident when they emigrate permanently to another country or they are considered a resident of another country under the terms of a double tax agreement (DTA).

However, they are not automatically recognised by SARS as a tax non-resident. Instead, they must inform SARS of their change in status as it could have consequences on how they are taxed. To do this, they must follow a very specific process called ‘ceasing tax residency’ and provide SARS with required documentation as evidence of this change.

To understand why this is, you first need to understand South Africa’s tax system and how you become a tax non-resident by emigration or through a DTA.

South Africa’s tax system

On 1 March 2000, South Africa moved from a source-based tax system to a residency-based tax system. Source-based taxation meant South Africans only paid tax on their locally sourced income. Anything they earned in a foreign jurisdiction was tax free or taxed by that jurisdiction.

Under the residency-based system, citizens are now deemed to be resident taxpayers of South Africa no matter where they live in the world and are taxed on their entire worldwide income.

So, the question is: do you have to pay tax to SARS and your new home country’s tax authority? The answer depends on the jurisdiction and whether or not you have, in fact, become a tax non-resident.

Becoming a tax non-resident through a DTA

By default, citizens of a residency-based tax system living in another country will pay tax to both jurisdictions, resulting in double taxation of their earnings. Many governments recognise that this would be detrimental to the financial well-being of the taxpayer and have entered into DTAs with each other to prevent it from happening.

The conditions of a DTA between SARS and another jurisdiction may dictate that South Africans living in that jurisdiction become solely its tax residents after a given duration and remain so until they leave. Therefore, they will only pay tax in that country and be a tax non-resident in South Africa (except where they have sources of income remaining in South Africa). Under these circumstances they involuntarily become a tax non-resident and must inform SARS of this change in their status.

But not all DTAs are equal and their terms depend on the taxation policies of the participating states. This could mean that, under agreed-upon conditions, the taxpayer’s residency may be split between the two jurisdictions and their tax submissions will be more complicated.

Lastly, certain jurisdictions have no DTA with South Africa and taxpayers will be double-taxed in those regions. Here, it is impossible to become a tax non-resident.

Obviously, these options may be necessary for those working abroad temporarily but they are not ideal for South Africans moving away permanently.

Becoming a tax non-resident by way of emigration

South Africans who become tax non-residents because they emigrate to another country are not only required to inform SARS but should do so proactively.

By becoming tax non-residents and being officially recorded as such, they will avoid the burden of submissions to SARS and the threat of double taxation. Additionally, they will protect their future wealth from capital gains tax (CGT) by SARS.

This is by far the best solution for this type of tax non-resident and makes it worth their effort to go through the formal process of ceasing tax residency.

Ceasing residency as a tax non-resident

Regardless of your circumstances, ceasing tax residency depends on your ability to convince SARS that you have indeed become a tax non-resident.

The first step is to notify SARS of your change in status by completing the Registration, Amendments and Verification form (RAV01) available on eFiling or by appointment at your local SARS branch.

Under the Income Tax Liability Details section of the form, indicate that you are a ‘non-resident’, ‘individual’ taxpayer and enter the date on which you became a tax non-resident.

After you submit the form, SARS will create a case on its system and send you a letter requesting that you submit supporting documents as evidence of your claim. If you cannot, you will not be flagged as a tax non-resident on SARS’ database of taxpayers.

Which documents SARS requests will depend on the manner in which you became a tax non-resident.

If it is by way of a DTA, you will usually only need to submit:

• A declaration of being a tax non-resident, and
• A certificate of tax residence from the foreign revenue authority or a letter from the authority stating that you are a tax resident in that jurisdiction

However, if you are emigrating permanently, you may need to submit:

• Your declaration that you are a tax non-resident
• Proof of the type of visa by which entry to your new country of residence is granted
• If applicable, proof of permanent residence in that country
• If available, a certificate of tax residence from the foreign tax authority or a letter from them indicating you are a tax resident in that jurisdiction
• Details of any property remaining in South Africa and for what purpose it is being used
• Details of any business interests that remain in South Africa, such as investments, employment or businesses
• Details of your family, indicating if any members will remain behind and why
• Details of your social interests, such as gym contracts, club memberships or societies you belong to, and where your personal belongings are kept
• Details of the frequency and reason for any return visits to South Africa you plan to undertake in the future
• Any other information SARS deems necessary to establish the validity of your claim

Although one can become a tax non-resident by being physically absent from the country for more than 330 days, this condition typically does not apply to natural-born South Africans.

Pursuing financial emigration

Becoming a tax non-resident in South Africa might seem easy but can quickly become complicated, especially if you don’t follow the process correctly, don’t provide the exact documentation requested, or have complex tax affairs.

SARS will certainly reject your application if you are behind on your submissions, have undeclared worldwide income or are in arrears with your account.

It is always best to pursue financial emigration, a professionally administered process that includes becoming a tax non-resident. However, it also precedes your application with a full tax diagnostic to establish if you are fully tax compliant first and identifies any obstacles or pitfalls before they arise so problems can be corrected proactively.

Financial emigration can help you successfully become a tax non-resident and avoid unnecessary delays in enjoying your new life abroad.