Last year, SARS began issuing tax non-resident letters (shortened here from “Non-Resident Tax Status Confirmation Letters” for simplicity) to taxpayers who have ceased tax residency. However, tax non-resident letters are not provided automatically after the process is complete. Instead, they need to be formally requested by the now non-resident taxpayer.

Their introduction has caused some confusion among emigrating and expatriate South Africans who, on ceasing tax residency, were already issued with a Tax Compliance Status PIN (TCS PIN).

So, what are tax non-resident letters, why do you need one and how do you apply for one from SARS?

What are tax non-resident letters?

Tax non-resident letters are a formal hardcopy declaration from SARS that a taxpayer has ceased to be a resident of South Africa for tax purposes. Of course, the first question that must be answered is: what does it mean to cease residency for tax purposes?

On 1 March 2001, South Africa moved from a source-based tax system to a residency-based tax system. Before then, South African citizens were taxed on their locally sourced income only but, since that date, they are now taxed on their entire worldwide income, from both local and foreign sources.

Further, anyone born here is deemed to permanently reside in South Africa for tax purposes, even if they move overseas temporarily. As such, they will continue to pay tax to SARS regardless of which country they live in, as they must inevitably return here.

So, the onus is on the one emigrating from South Africa to inform SARS that they have ceased tax residency, but also to submit the required objective evidence that they intend to reside outside the country permanently. If SARS accepts their proof, they will be flagged as non-resident on its database of taxpayers.

This is where tax non-resident letters come in, as SARS does not offer a formal acknowledgement that an applicant has ceased tax residency.

Tax non-resident letters or TCS PIN?

After ceasing tax residency, emigrant South Africans are issued with a Tax Compliance Status PIN (TCS PIN). These PINS are not the same as tax non-resident letters.

The PIN can be shared with third parties that require the taxpayer to be SARS compliant before transacting with them. It gives them limited access to the taxpayer’s eFiling profile so they can view and verify for themselves that they are fully compliant.

Once the taxpayer has departed South Africa, the TCS PIN becomes meaningless because it is just a mechanism to access their now dormant online tax compliance status. At that point, tax non-resident letters become the only real evidence to confirm that an expatriate South African has indeed ceased tax residency.

Why are tax non-resident letters needed?

Why are tax non-resident letters even necessary? After all, once an emigrant South African is flagged as non-resident on SARS’ taxpayer database, is that not good enough?

There are several reasons why they are crucial:

• There have been cases in the past where taxpayers who formally ceased tax residency found they were still flagged as resident later on, possibly due to a system fault or human error. Tax non-resident letters are hard evidence that SARS’ system should be corrected and that the taxpayer should not have to repeat the process to cease tax residency again.
• New legislation requires that South Africans must be non-resident for over 3 years before they can transfer their retirement payout to their foreign bank account. Tax non-resident letters can be used to establish that time frame has been satisfied and to affect the payout.
• An emigrated South African may take a periodic annuity or even continue to receive a salaried income from a local employer. Tax non-resident letters are needed to release these funds to their foreign bank account.

How to apply for tax non-resident letters

Tax non-resident letters must be requested by the taxpayer themselves. Although SARS indicated in the past that it would issue one automatically on the taxpayer’s successful application to cease tax residency, this has not materialised so far.

Why not is anyone’s guess. It may simply be that SARS is trying to cut down on manual work, and any move to automate or digitalise the process is a low priority on its IT project list. SARS is, after all, more focused on maximising its collection efforts.

Tax non-resident letters are therefore only issued after a taxpayer has written to SARS requesting one, providing any reference received after the cessation process.

Rejected requests

There are many cases where requests for tax non-resident letters have been rejected by SARS, and seldom were they turned down incorrectly.

Some taxpayers have followed the wrong process to cease tax residency, not followed the process at all, or simply been led to believe their application was successful by an unscrupulous advisor.

So tax non-resident letters are also a good acid test that the process has in fact been finalised and the taxpayer is indeed released from their tax obligation to SARS.

For this reason, tax non-resident letters should be requested as soon as possible after being informed that one has ceased tax residency. Not being rejected means taxpayers can embark on their new life journey confident that the loose ends of their tax affairs have been firmly tied up.