Why Tax Residency Status Matters
Your tax residency status determines whether or not you are liable to pay taxes in South Africa on your worldwide income. As a South African tax resident, you are subject to tax on your global earnings, regardless of where you live. However, by formally ceasing your South African tax residency, you will only be taxed on South African-sourced income, which can result to significant tax savings.
It’s important to understand that tax residency is not based on an individual’s perception or convenience; it is determined by specific facts and circumstances. Therefore, expatriates must take the necessary steps to notify SARS of their change in tax residency status to avoid future complications.
What are the requirements when ceasing tax residency?
When emigrating, SARS requires confirmation of specific details to process your change of tax residency status, including but not limited to the following:
1. Qualifying basis in which one can cease tax residency
It’s prudent that the change in the status of the taxpayer meets certain criteria as set out by SARS and that the relevant supporting documentation is provided to align the taxpayer’s intention and declaration. In order to align a taxpayer’s status with SARS a declaration has to be made to SARS through means of either ceasing through the ordinarily resident or the double taxation agreement basis.
Ceasing through the ordinarily resident basis will mean that the taxpayer must have the intention of remaining abroad permanently.In addition to that, the taxpayer will need to provide objective factors to support their intention.
Ceasing through the double taxation agreement basis will mean that the taxpayer intends to return to South Africa after their wanderings, and they will be considered non-resident for the time temporarily abroad.
2. Adhering to SARS compliance
Adhering to SARS compliance is essential when ceasing South African tax residency. This involves ensuring that all tax obligations are met before ceasing residency status, including filing final tax returns and settling any outstanding liabilities. Taxpayers must also notify SARS of their intention to cease residency, as required, to clarify their tax position and avoid future disputes. Compliance with SARS regulations helps ensure a smooth transition and mitigates the risk of penalties or double taxation.
3. Penalties for Non-Compliance
Failure to comply with the requirements for ceasing tax residency in South Africa can result in significant penalties. These may include fines, interest on unpaid taxes, and potential legal action. Non-compliance can also lead to continued tax liability on worldwide income, even after a taxpayer has moved abroad, and the risk of being subject to double taxation.
It is therefore crucial to follow all legal procedures and fulfil tax obligations to avoid these consequences.
Seeking Professional Advice
Understanding SARS’ specific reporting requirements for ceasing tax residency is crucial when emigrating for tax purposes, as it ensures smooth tax compliance. For personalized advice, it is strongly recommended to consult with a tax professional who is well-versed in South African tax laws, expatriate tax and various treaties.
