South African expats now need this letter to keep SARS at bay – even if they’ve already left

South African taxpayers that have made the jump abroad will need to make sure they have a new confirmation letter showing that they are non-tax resident to keep the South African Revenue Service (SARS) from coming after them..

According to Tax Consulting SA, the certificate is an entirely new system that has come into effect, and even expats who have completed their financial emigration will have to get on board.

“As a taxpayer, you may think that once you cease to be a tax resident in South Africa – commonly known as Financial Emigration – there are no further compliance requirements that you need to meet. However, that is no longer the case,” the group said.

SARS now requires all individuals who have ceased their tax residency in South Africa to obtain a Notice of Non-Tax Residency Status Confirmation Letter and realign their non-residency status with SARS.

“This step may seem unnecessary or burdensome, but it is now compulsory, and failing to obtain this letter can result in serious consequences for your tax compliance. Therefore, it is crucial that you understand the importance of obtaining this letter and ensure that you comply with this new requirement,” the group said.

Tax Consulting said that it has received numerous queries about the confirmation letter, which makes it clear that many expats (and prospective emigrants) are still confused about what it entails.

Simply put, the notice of non-tax residency confirmation letter is a document issued by SARS to confirm that a taxpayer has changed their status from tax resident to a non-resident.

“This notice is unique as it provides the specific date on which you ceased to be a tax resident of South Africa,” the group said.

“This document is important for non-resident taxpayers as it serves as your first line of defense against any future tax liability on your foreign-sourced income. As SARS has increased its focus on offshore holdings and introduced aggressive collection measures, this notice becomes your ‘shield and armour’ should SARS make any inquiry into your tax residency.”

Expats who have already left

Before the introduction of this new process, the confirmation of cessation of tax residency was typically done through the completion of the MP336(b) and issuance of the Emigration Tax Clearance Certificate (ETCC) documents, Tax Consulting said.

However, it noted that the Notice of Non-Tax Residency Status Confirmation Letter is now a separate SARS initiative and process that is used as a confirmation that an individual has indeed ceased to be a tax resident of South Africa.

“The impact of this new process on taxpayers who had previously gone through the process of ceasing their tax residency in South Africa is two-fold,” it said.

On the one hand, it provides an additional level of certainty and confirmation that their tax residency status has been properly dealt with and recorded by SARS.

On the other hand, the introduction of this new process also means that individuals who have previously ceased their tax residency in South Africa will now be required to undergo an additional process, by obtaining the Notice of Non-Tax Residency Status Confirmation Letter in order to align their non-residency status.

Tax Consulting said that the requirement for a Notice of Non-Tax Residency Status Confirmation Letter is a recent development in South African tax law, with SARS implementing the additional step in early 2022.

However, many taxpayers may have overlooked it, seeing it as just an “additional confirmation”.

During the 2022 annual filing season, significant changes were made to the process of submitting non-resident tax returns, however – in particular, the non-resident tick box was greyed out, causing confusion among taxpayers who were unsure how to proceed.

“This change highlighted the importance of the Non-Tax Residency Status Confirmation Letter, as it is now a critical component in demonstrating your non-resident status to SARS and no longer serves as a mere formality,” Tax Consulting said.

Another scary trend has been the influx of expatriates approaching Financial Emigration regarding SARS enquiries, large tax liabilities incorrectly owed to SARS, and penalties and interests incorrectly allocated, due to the non-resident taxpayer’s status not being adequately confirmed with SARS.

“Without this letter, you may face significant challenges in completing your tax returns and demonstrating your compliance with South African tax laws.”

The group said that the letter will not only help expats avoid any penalties or fines but also ensure that their tax affairs are in order and that they can proceed with confidence in their dealings with SARS.

Read: New emigration tax rules could backfire for SARS: expert