South Africans working and residing overseas, even those who left the sunny shores decades ago, may find they are literally not on the same page as the South African Revenue Service (SARS) when it comes to their tax residency status, and that can come with serious tax implications. 

After recent system changes at the office of the Tax Man involving the declaration of tax residency status, many South African expatriates are discovering that the SARS eFiling platform regards them as South African tax residents, despite them having formalised their emigration previously.

Some even have the SARS Notice of Non-Resident Tax Status Letter confirming they have ceased to be South African tax residents, but eFiling tells another story.

This contradicting information mainly affects expatriates who formalised their emigration through the South African Reserve Bank (SARB) pre-2021, those who completed tax emigration through SARS lately, as well as expats who left the country before the residency tax-based system was introduced in 2001.

Affected expatriates must take note of possible huge tax implications if SARS sees you as a tax resident while in fact you are a non-resident, because the two are treated differently. South African tax residents working abroad, pay tax to SARS on their worldwide income, while non-residents are only taxed on their South African sourced income. 

Incorrect tax residency status on the eFiling platform followed after SARS introduced a 2023-update to the Registration, Amendments, and Verification Form (RAV01), which taxpayers use to update personal and tax-related information. The new RAV01 version includes a dedicated section for tax residency status changes. This update is a direct response to the growing need for regulatory compliance and reflects SARS’ intention to centralize residency declarations in line with international tax standards.

It seems previous declarations of being a non-tax resident where expats just ticked a box on their annual tax return as to this status, did not necessarily do the trick when the updated form was introduced. It could be that information on prior years’ auto-assessments incorrectly reverted some taxpayers’ status back to that of tax resident on eFiling.

Don’t assume all is in order

All expatriates should verify their status and cessation date of tax residency on SARS eFiling to ensure they are formally recognized as non-tax residents, avoiding ongoing obligations, taxation of their foreign-sourced income, and potential penalties. This will mean undergoing a fresh review of residency status and providing additional information to SARS as required by the updated RAV01 verification and audit process.

Although a once-off check is supposed to suffice, non-tax residents are advised to check their status at least a few months before the opening of tax filing season each year. This will allow enough time to rectify any incorrect information with the tax authority.

The RAV01 Update: Simplifying but strengthening compliance

With the RAV01 update, SARS has simplified the process for expatriates to notify the tax authority of their change in residency status. This tax residency declaration section makes it easier for SARS to monitor taxpayers’ status and detect inconsistencies in residency declarations. Before submitting this form, expats must ensure all their tax filings are accurate and up to date, as discrepancies could trigger audits, penalties, or even denial of non-residency status until rectified.

The RAV01’s residency audit and verification include questions on the expatriate’s physical presence, family ties, and financial interests, which help SARS assess the taxpayer’s intent regarding residency. By asking these targeted questions, SARS aims to identify “accidental residents” or those who might misinterpret their residency status or tax obligations.

All under SARS’ purview now

Understanding the distinctions between financial and tax emigration is essential for expatriates looking to formalize their status, avoid double taxation, and comply with South African tax laws.

Previously, financial emigration with SARB was sufficient for expatriates to transfer certain assets abroad, but the Reserve Bank no longer recognizes financial emigration as a separate process. 

Since March 2021 the responsibility shifted to SARS. Now, expatriates must go through SARS to establish non-residency status for tax purposes, encompassing both tax and exchange control implications.

Expats not free from all compliance obligations 

Even though you have ceased tax residency in South Africa, you still have to submit an annual tax return to SARS.  Tax emigration exit does not free expatriates from all compliance obligations as they have ongoing requirements for income derived from South Africa. 

Tax emigration to become a non-resident for tax purposes can be a complex process involving documentation, compliance checks, and potential exit taxes on certain qualifying global assets and is best handled with the help of professionals. They will also help you to stay informed about updated regulations related to tax residency and compliance.

Practical Steps for Expatriates

Evaluate your Tax Residency: Review SARS’s criteria for tax residency, particularly if your physical presence and financial ties are mixed across South Africa and other countries. Professional advice will help clarify whether you meet non-residency requirements.

Understand the Exit Tax: Be prepared for the exit tax implications of declaring non-residency, which can affect global assets and one’s financial planning. Proper planning can mitigate some of the costs of this once-off deemed capital gains tax. The exit tax applies to certain categories of assets, such as global investments, and reflects as a "deemed sale" on the day prior to the taxpayer’s exit date. 

Update the RAV01 carefully: Use this form to declare your tax residency status accurately. Ensure all supporting documentation aligns with your declared status to avoid potential discrepancies or penalties.

The evolving process of ceasing tax residency in South Africa highlights the need for expatriates to approach tax emigration thoughtfully, armed with accurate information and professional guidance. With the right support, South Africans abroad can navigate this complex terrain confidently, ensuring their tax affairs align with their residency status and long-term financial goals.

Written by Lovemore Ndlovu, Head of SARB Engagement and Expatriate Compliance at Tax Consulting SA