South African taxpayers require a non-resident confirmation letter to stop paying tax when permanently leaving the country – but what happens if they reject your claim? This is becoming an increasingly common issue, says specialist advisory firm Tax Consulting SA.
“The non-resident confirmation letter is where the South African Revenue Service (SARS) formally confirms that you are non-resident for tax purposes. They run a system and check to make sure that they relinquish their worldwide taxing right, as this is not something any Revenue Authority wants to see,” the firm said.
“We are increasingly approached by taxpayers, or their advisors, where a Non-Resident Confirmation Letter has been rejected. To date, we have not seen a SARS rejection for this letter that has been incorrectly issued.
Tax Consulting SA noted the reasons for these rejections is normally because the process originally followed to break tax residency with SARS was flawed or, in many cases, no formal process was followed.”
It is worth noting that, to be able to apply for the confirmation letter, one must have already completed emigration (ceasing of tax residency) through the formal SARS process, Tax Consulting SA said.
“Just like any other legal application, this process has specific requirements and, typical to SARS, these must be met beyond doubt for the letter to be granted. Keeping in mind that the issuing of the non-resident confirmation letter involves a verification one’s South African tax residency status – SARS requires various supporting documents for this application to be successful.
“This is where you will know if your tax advisor followed the correct procedures in sorting out your international tax matters. Some advisors issue long opinions on tax residency, while others do what is best called a ‘soft emigration’ with SARS where they do not follow the correct process. These approaches from tax advisors, albeit on opposite sides of the spectrum, have one thing in common – where the correct process is not followed, the SARS Confirmation Letter will not be issued.”
Tax Consulting SA noted the application can be rejected after SARS has conducted their stringent compliance checks and extensive verification of the evidence provided.
A rejection is usually based on a lack of documents and information presented to SARS in support of the application, or if one has not formally ceased their tax residency yet, it said.
“Only after the set requirements are met, then the application will be successful. The onus is always on you, the taxpayer, to prove your facts to SARS beyond doubt.”
“This is not an easy-go process; it is admin intensive and lengthy. It is always advisable that you seek professional advice and competent assistance when dealing with SARS matters.”