As South Africans embark on a journey beyond our borders, the need to inform the South African Revenue Service (“SARS”) about one’s emigration is crucial for peace of mind.
Khutso Makgoka
Legal Consultant, Expatriate Tax
A casual note to the taxman bidding South Africa farewell is not enough, it is imperative to understand that a more formal, legal and structured process is required to effectively cease tax residency.
The landscape of tax residency has evolved drastically over the years which has caused confusion and misinformation among the South African expatriate community.
For those temporarily abroad, foreign-sourced income can be protected from SARS by leveraging the section 10(1)(o)(ii) exemption or a relevant Double Tax Agreement, where South Africa has concluded such agreement.
However, for those committed to establishing a life abroad permanently, becoming a non-resident through the so-called financial emigration process is the clear route to breaking tax ties. When one ceases to be tax resident, a first and pivotal consideration is an expatriate’s intention to establish a permanent ordinary residence abroad.
The successful application to SARS to cease tax residency will result in a letter being issued by SARS, confirming your non-resident tax status.
Declaring non-residency is a formal and structured process which has evolved drastically over the years. The evolution of the process has created uncertainty for those saying goodbye and the confirmation required.
Prior to March 2021, the process of ceasing tax residency required the completion of the MP336(b) form with the South African Reserve Bank, application and issuance of the Emigration Tax Clearance Certificate (ETCC) by SARS.
In this new era, the process starts with SARS and the issuance of a Notice of Non-Tax Resident Tax Status confirmation letter, informally dubbed the ‘golden letter’.
This ‘golden letter’ will serve as unequivocal proof of an expatriate’s non-resident tax status and a clear indication of tax ties with South Africa being broken.
The ‘golden letter’ extends to the Approval for International Transfer (AIT) Tax Compliance Status (TCS) pin for those externalizing South African funds and assets and is considered the first substantiating document for this process.
It certainly rings true that ceasing tax residency requires more than a farewell note to the taxman and following the correct process will not only guarantee breaking tax ties but also assist in externalizing financial assets from South Africa.
The journey for South African expatriates can be rife with challenges which require a guiding hand and a meticulous strategy to become tax non-resident and correctly externalize financial assets. Expatriates are urged to seek expert advice to determine their tax residency status, strategize their exit and, where necessary, obtain formal confirmation from the tax man of their non-resident tax status.
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