Tax warning for South Africans looking to jump ship

Taxpayers must not assume they have left the South African tax system behind just because they have left the country, says Danielle Luwes, a tax manager at Hobbs Sinclair.

South Africans are responsible for paying taxes to the South African Revenue Service (SARS) on their worldwide income, including both local and foreign income, and estate duty on their worldwide assets upon death, said Luwes.

“It’s important to take the necessary steps to ensure that you are no longer considered a tax resident when you take up residence in a foreign country,” she added.

According to the tax expert, ceasing tax residency requires notifying SARS within 21 days of leaving the country and registering as taxpayers in the new country of residence.

Luwes said that after this, certain consequences follow.

Initially, a taxpayer would be liable for capital gains tax on the deemed disposal of their worldwide assets.

She stated, however, that some exceptions may apply; for example, a taxpayer will not be liable for capital tax on their South African property assets, including their personal home.

“This capital gains tax may affect provisional tax payments and could potentially result in penalties and interest if not timeously brought into account,” Luwes said.

Following this, once the taxpayer is considered a non-tax resident, they will only be liable for South African taxes on domestic-sourced income.

“Foreign income will no longer be subject to tax in South Africa. Importantly, if you are no longer a South African tax resident, you will no longer be liable for estate duty on assets outside of South Africa,” added Luwes.

The process

According to Luwes, to notify the taxman about ceasing tax residency, a taxpayer must update their RAV01 on e-filing, submit relevant documents and indicate which basis they will use to cease tax residency.

She said there are three qualifying bases:

• Ceasing to be an ordinarily resident
• Ceasing via a physical presence test
• Ceasing under a Double Tax Agreement (DTA)

Each basis has unique document requirements.

To qualify under a specific basis, it is essential that an individual satisfies the requirements laid out in the South African Income Tax Act and the Double Taxation Agreement between South Africa and the country of their new residency.

“It is important to note that SARS is often hesitant to accept tax emigration applications and requires sufficient evidence of intent to cease South African tax residency.”

“SARS will conduct an audit on the taxpayer to confirm tax residency status and assess all related matters, which could be extensive. Therefore, taxpayers should prepare all necessary documents ahead of time to ensure that their application is successful,” added Luwes.

Read: South Africa has itself to blame for its troubles: Kganyago