Tax residency and tax emigration from South Africa

Tax emigration is the process of changing your residency status with SARS to be classified as a taxpayer of another jurisdiction. This could avoid paying unnecessary taxes and penalties and allows you to transfer your retirement pension offshore.

Understanding Tax Residency

Your citizenship status will not be affected by changing your tax residency, but it does have an impact on the amount payable to SARS.

Because of its residency-based tax structure, South Africa taxes its citizens differently from those who are no longer regarded as a resident.

  • Tax is payable to SARS on all your income if you are a tax resident and live in South Africa.
  • If you are a tax resident but spend the majority of the year* living and working abroad, you are exempt from SARS tax on your worldwide income and the first R1.25 million of employment income. SARS will continue to tax income generated beyond that threshold.
  • Only the income you generate in South Africa, if you are not a tax resident, is subject to SARS tax (e.g. from renting out a South African property or dividends from a South African company).

* More than 183 full days in a 12-month period (at least 60 of which must be consecutive).

Double Taxation Agreements (DTAs) between nations can shield you from having to pay tax on your foreign income in both South Africa and another country, or they can allow you to pay less tax if you are a tax resident in South Africa. To make sure you’re not paying too much tax, it’s important to research the DTAs that have been put in place between South Africa and your new country of residency.

How does SARS determine your tax status?

Two “tests” are conducted by SARS to determine whether you should be deemed a tax resident.

The Ordinary Resident Test

This subjective test aims to establish the location of your primary residence.

SARS will look at the following factors:

  • Where your family lives.
  • The location of what you deem your permanent home.
  • If you have belongings in storage in SA.
  • If you regularly return to a place in SA.

The Physical Presence Test

SARS will administer a second test if it determines that you typically reside outside of South Africa. This examines the number of days you spend abroad.

To prove non-resident status, you must stay outside of South Africa for a period exceeding:

  • A total of 91 days during the tax year under consideration.
  • A total of 91 days throughout each of the five tax years prior to the one being considered.
  • 915 days, or an average of 183 days a year during the preceding five tax years.

Important Note: The date an individual leaves South Africa is important as it could trigger tax consequences.

An individual who is a resident by virtue of the physical presence test stops being a resident when that individual is physically outside of the RSA for a continuous period of at least 330 days. Residence will cease from the day the individual leaves the country.

How can an individual change their tax residency status?

Tax emigration must be declared in the tax return for the period during which you changed your status. You can backdate a failure to disclose it at the time, but you might be subject to fines and be required to pay Capital Gains Tax (CGT) on your current asset base.

Are you a provisional taxpayer?

Every time you benefit from selling something you own; you must pay CGT. Your assets (apart from any real estate located in South Africa and your retirement account (RA)) are assumed to have been sold to your overseas self when you declare yourself to be a non-tax resident. The “exit tax” amount, sometimes known as the CGT amount, is then immediately due.

CGT is not a flat rate in South Africa. You are taxed according to your tax bracket, and a percentage is applied to your other income for that tax year. Depending on the tax category you’re in, the CGT rate might range from 7.2 per cent to 18 per cent.

The CGT payable may be lower if you leave South Africa earlier in the taxation year of assessment as your income from a South African source could be lower. This is an incentive to emigrate earlier in the tax year.

However, several intricate variables can affect when and how much you pay. Before attempting to change your tax status, we advise that you consult a specialist.

Our Associates are experts in South African tax emigration and can help manage the entire procedure from initiation to conclusion.