Understanding Tax Residency Status
If you are still considered a tax resident of South Africa, you remain liable to the South African Revenue Service (SARS) for taxes on your worldwide income. While South Africa does not impose an inheritance tax on individuals, estate duty applies to the deceased’s estate. Specifically, a 20% estate duty is levied on the value exceeding R3.5 million, and a 25% duty applies to estates valued above R30 million.
As a South African tax resident living abroad, you should be aware of the following:
- Inheritance Declaration: You must declare your inheritance to SARS, regardless of whether you are physically present in South Africa. Failure to declare this may lead to penalties or complications when transferring funds abroad.
- Double Taxation Risk: Depending on your country of residence, you may face double taxation on the inheritance. South Africa has Double Taxation Agreements (DTAs) with several countries to help mitigate the issue of double taxation on the same asset or income.
- Funds Transfer Requirements: If you are a non-resident, to transfer inherited funds abroad, you must comply with South African Reserve Bank (SARB) regulations and obtain an Approval for International Transfer (AIT) pin from SARS. For South African tax residents who have not yet exhausted their Single Discretionary Allowance (SDA), they can use this allowance for transfers of funds below R1 million. For transfers exceeding 1 million, they will need to obtain an AIT pin.
If you have ceased your South African tax residency, will be classified as a non-resident for tax purposes, and no longer taxed on worldwide income. Non-residency for tax purposes is formalised through the process of financial emigration, which involves a once-off application submitted to SARS.
For Non-Tax Residents:
- No Tax on Worldwide Income: As a non-tax resident, you are not liable for taxes on worldwide income. However, you must still declare the inheritance you receive to SARS as this income arises within South Africa.
- Estate Duty Still Applies: Even as a non-resident, the South African estate is subject to estate duty, which will be deducted before the distribution of assets to beneficiaries.
- Proof of Non-Residency: To receive your inheritance, you must provide proof of your non-residency by obtaining a non-residency confirmation letter which is the formal document issued by SARS which recognises you as a non-resident.
- Easier Fund Transfers: Once your non-residency has been confirmed, transferring the inheritance abroad becomes more straightforward. However, there are exchange control limits: up to R10 million which can be transferred without clearance from SARS. For transfers exceeding R10 million, a non-resident abroad will need to obtain an Approval for International Transfer (AIT) PIN and clearance from SARB.
Formalize Your Emigration Once and For All
Financial emigration is the most comprehensive solution for South Africans intending to reside abroad permanently and cease their tax residency. This process requires:
- Declaration of Permanent Intent: This is a declaration indicating your intention to permanently reside outside of South Africa, which effectively breaks the “ordinarily resident” test used by SARS to determine tax residency.
- Submission of Supporting Documentation: Providing SARS with the necessary documentation to prove your objective factors is an intricate part of this process to ensure a successful first application.
For South Africans living abroad, ceasing tax residency is crucial for the smooth and compliant receipt of inheritance from South Africa. It is wise for expatriates to establish their tax non-residency status to avoid any unforeseen stumbling blocks when it comes to SARS and the requirements of an estate executor. Those who have not yet formalized their non-residency should take proactive steps to ensure their affairs with SARS are in order, especially if they are fortunate enough to inherit from an estate.
