SARS cracking down on one group of South Africans
The South African Revenue Service (SARS) is cracking down on South Africans living abroad, and tax specialists have warned that many expats could be more exposed than they realise.
According to Tax Consulting SA, a growing number of individuals believe that leaving the country or renouncing South African citizenship automatically ends their tax obligations.
“From a tax-law perspective, this assumption is incorrect and can expose individuals to significant liabilities, often only years after leaving the country,” the firm said.
The firm explained that the problem arises from a fundamental misunderstanding of the distinction between citizenship status and tax residency status under South African law.
While citizenship is managed by the Department of Home Affairs, tax residency is determined separately by SARS under the Income Tax Act.
“These two concepts are legally distinct, and one does not cancel out the other,” said Tax Consulting SA.
Importantly, SARS is not automatically notified when someone relinquishes their South African citizenship.
“There is no legal mechanism requiring Home Affairs to notify SARS when citizenship is renounced,” the firm added. “As a result, SARS does not automatically amend a taxpayer’s residency status.”
This means that a person can cease to be a South African citizen but still be treated as a South African tax resident. In that case, SARS is entitled to tax the individual on their worldwide income.
According to Tax Consulting SA, many expats only discover this problem years later. “In practice, individuals often remain unaware of their exposure until a trigger event occurs.”
These events can include withdrawing retirement or preservation funds in South Africa, moving money offshore, applying for tax clearance, resolving old tax issues, or planning to return to or retire in South Africa.
The firm warned that when this happens, SARS may still regard the individual as a tax resident if the correct process to cease tax residency was never followed.
By then, the consequences can be costly. SARS may assess the person on their worldwide income, review several years of tax compliance, apply exit tax rules, and charge interest and penalties.
“Because SARS usually only reassesses residency when prompted, incorrect assumptions can go undetected for years,” the firm said. “Once SARS steps in, the taxpayer is often left reacting, with limited options.”
A common but risky misunderstanding
The firm emphasised that tax residency is unrelated to holding a South African passport. “Tax residency is assessed independently of citizenship,” it said.
SARS applies the ordinarily resident test, which examines whether South Africa remains a person’s primary or usual home, as well as the physical presence test, which is based on the number of days an individual spends in the country over a specified period.
Where relevant, SARS also considers double taxation agreements between South Africa and other countries.
“The domestic tests are based on South African law, while treaty relief comes from international agreements,” Tax Consulting SA said.
Ending tax residency is not automatic and does not happen simply because someone emigrates or changes nationality.
The cessation of tax residency is a factual enquiry aimed at reaching a legal conclusion. This involves reviewing personal, financial and social ties to South Africa and making the correct disclosures to SARS.
“If this process is not completed, an individual’s tax residency status may remain unchanged on SARS’ systems,” it added. Tax Consulting SA described this as a common but risky misunderstanding.
“Renouncing citizenship does not remove an individual from South Africa’s residence-based tax system, and it does not end tax compliance obligations,” the firm said.
It added that non-citizenship does not necessarily equate to non-residency for tax purposes. With SARS expected to increase enforcement, the firm said expats should act sooner rather than later.
“For individuals who have renounced South African citizenship, or are thinking about doing so, an independent tax residency assessment is essential,” Tax Consulting SA said.
Waiting until SARS raises questions often removes planning opportunities and increases financial risk.
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