SARS going after one group who own property and have bank accounts in South Africa
South Africa’s changing tax enforcement landscape is increasingly involving foreign nationals in complicated disputes with the South African Revenue Service (SARS).
This is especially true for foreign individuals who hold South African permanent residency, maintain local bank accounts, own property, or support family members living in the country.
Many foreign nationals lawfully earn income abroad and remain tax residents elsewhere.
However, SARS seems to be intensifying scrutiny of unexplained deposits into South African bank accounts, often presuming these amounts are taxable income unless proven otherwise.
As a result, an increasing number of foreign nationals are facing:
- retrospective audits by SARS;
- automatic tax registrations;
- administrative penalties;
- estimated assessments; and
- disputes concerning their South African tax residency status.
Receiving funds in a South African bank account does not automatically make those amounts taxable in South Africa.
However, taxpayers are increasingly required to provide detailed evidence regarding the origin, nature, and tax treatment of any inbound foreign funds.
Tax Consulting SA has highlighted a significant challenge for foreign nationals regarding SARS’s interpretation of South African tax residency principles.
This is particularly relevant for individuals who maintain economic or family ties to South Africa.
In a recent case, a Kenyan national who had permanently lived and worked in Mozambique as an attorney for over 20 years was subjected to a SARS audit.
This occurred after he failed to submit South African income tax returns for 2020 and subsequent years.
Although the individual held permanent residency in South Africa and owned several investment properties there, he had never worked in South Africa and primarily lived and earned his income in Mozambique.
His wife and children lived in South Africa for the children’s schooling, while he travelled regularly between the two countries without exceeding the physical presence thresholds typically associated with South African tax residency.
Despite these circumstances, SARS automatically activated his South African tax profile as a tax resident and sought to classify transfers from Mozambique into his South African bank accounts as taxable income.
SARS increases visibility
The situation highlights the complex differences between having South African permanent residency, maintaining South African assets or family connections, and being considered a South African tax resident under domestic law or relevant double tax agreements.
While foreign nationals can legally own South African assets and maintain banking relationships, SARS may still classify them as tax residents if there are sufficient connections, particularly in cases where:
- Spouses or dependents live in South Africa;
- A permanent home is available in the country;
- Significant economic interests are held in South Africa; or
- The taxpayer frequently returns to South Africa.
Tax Consulting SA said that a further trend emerging in SARS audits involves treating inbound foreign transfers as presumed taxable receipts.
“This is evident from a matter involving a foreign national residing in South Africa, where SARS questioned substantial deposits into the taxpayer’s local bank account,” said Tax Consulting SA.
This situation arises even though the taxpayer argues that most of the funds came from financial support provided by non-resident parents living abroad.
The taxpayer was ultimately required to provide the following documentation:
- Foreign bank statements
- MoneyGram and Western Union transfer confirmations
- Affidavits from family members
- Detailed reconciliations linking deposits to offshore remittances
Tax Consulting said that genuine family support payments, gifts, and allowances from non-resident relatives do not automatically count as taxable income solely because they are deposited into a South African bank account.
However, SARS increasingly requires taxpayers to substantiate the following:
- The identity of the sender
- The source of the funds
- The purpose of the payments
- Whether the receipts are classified as capital or revenue
In many instances, the challenge lies not in the legal requirements themselves, but in the taxpayer’s ability to produce sufficiently detailed evidence long after the transactions have taken place.
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