2 documents South African expats need to avoid being taxed by SARS
It is increasingly important that South African ex-pats are aware of the proper tax compliance procedure amid digital platforms creating misinformation, says Lovemore Ndlovu, a South African Reserve Bank (SARB) and South African Revenue Service (SARS) complaint manager for Tax Consulting SA.
Ceasing tax residency is a complex process, one that Tax Consulting SA terms ‘financial emigration’ and requires a taxpayer to prove to SARS objectively their intention to remain outside South Africa permanently. When going through the process of ‘financial emigration’, it is important that an ex-pat ensures all benefits that come with ceasing tax residency.
For this to be best achieved, two fundamental documents must be complied with and distinguished between each other, said Ndlovu.
Emigration Tax Compliance Status PIN (TCS)
The TCS is an official document issued by SARS as confirmation that a taxpayer has undergone the formal emigration process, declaring their remaining assets and exit tax, said Ndlovu.
The TCS PIN is valid for a period of 12 months from the date of issue.
SARS Non-Resident Tax Status Confirmation Letter
Ndlovu said that this is a letter issued by SARS confirming the taxpayer’s non-residence tax status.
“The letter confirms that the taxpayer has ceased their tax residence and with an indication of the date they ceased their tax residence.”
According to Ndlovu, this letter (currently) does not expire; thus, it is issued with no expiry date, meaning it can be used indefinitely – or at least until such time that one becomes or chooses to become a tax resident again.
The process
According to Ndlovu, expatriate taxpayers must undergo the SARS legal processes and obtain both letters to remain fully exempt from paying taxes on their foreign earned income.
“Other than the freedom of divorcing yourself from SARS as far as foreign sourced income is concerned, there are further benefits in obtaining these letters.”
With the changes in the Exchange Control Rulings, expatriate taxpayers with valid TCSs will be able to transfer all readily available funds abroad, such as the proceeds of their remaining assets, sale of fixed properties, shares, unit trusts and more, said Ndlovu.
Upon becoming a non-tax resident (more especially to withdraw any remaining policies), one will be required to have their bank accounts statuses converted to ‘non-resident’ in order to be able to receive the withdrawal proceeds and transfer them abroad, noted Ndlovu.
A valid TCS is required to prove that a person has formally emigrated in cases where a policy provider needs proof to pay proceeds into a non-resident bank account – if a withdrawal is made on the basis of emigration.
“Banks can only perform the account conversion process when one presents them with a valid Emigration TCS PIN to prove they have formally emigrated to be regarded as non-resident for tax purposes.”
A further shift has been noted where SARS now requires the SARS Non-Resident Tax Status Confirmation Letter for their processing of tax directives for withdrawal of policies by non-tax resident expatriates, said Ndlovu.
Policy providers have likewise followed suit by silently phasing out the emigration policy withdrawal option and replacing it with what they call ‘cessation of tax residency withdrawal’.
This means that, regardless of which regime one has formalised their emigration in terms of, the SARS Non-Resident Tax Status Confirmation Letter is now required to fully close the chapter on one’s residency in South Africa and successfully withdraw their remaining retirement vehicles (policies), said Ndlovu.
“Without this letter, SARS will not process the withdrawal tax directive, and, in turn, policy providers would not process the withdrawals,” said Ndlovu.
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