In recent years, the South African Revenue Service (SARS) and National Treasury have implemented several legislative and policy changes that have paved the way to enforcing the tax obligations of South Africans living and working abroad. 

Several amendments to the tax laws applicable to expatriates have, nevertheless, been veiled under the aim to “encourage South Africans abroad to keep their tax ties with the country.” The sentiments of this quote from the 2020 Budget Speech are, however, yet to be seen. Especially considering that the most recent policy amendments seem to make maintaining fiscal connections to South Africa (SA) administratively burdensome and potentially disadvantageous, it appears that SARS continues to place SA expats at a crossroads, with one path leading them toward ceasing tax residency. 

Reprieve or Reproach 

From March 2020, SARS and National Treasury officially imposed a limitation of R1.25-million per annum on the exemption for foreign employment income under section 10(1)(o)(ii) of the Income Tax Act. This means that any employment income earned while abroad, exceeding the R1.25-million mark, would be subject to normal tax in SA. This exemption already applies to the exclusion of any non-employment income.

However, there has been no further amendment to the R1.25-million limit to the expat exemption since then, and with the ever-fluctuating value of the Rand, the real level of relief the exemption affords has decreased and invoked further reproach from High-Net-Worth Individuals (HNWIs) earning foreign-sourced income. 

Further, in March 2021, the country saw the phasing out of the separate South African Reserve Bank (SARB) aspects of the emigration process, along with the introduction of the 3-year lock-in rule for those wishing to encash their retirement funds after permanently departing SA and ceasing their tax residency. 

Despite the purported aim to encourage South Africans to keep their tax ties to SA, it would seem that actions speak louder than words.

The 3-Year Lock-Up Rule

The impact of the 3-year lock-in rule is self-evident; South Africans who emigrate can no longer access their retirement funds immediately thereafter, to fund their re-settlement. Now, the need to provide comprehensive proof of non-resident tax status for three consecutive years is a critical requirement.

This has become a further component for tax planning, in view of the stringent verification processes and burdensome documentary requirements involved in divesting from SA following one’s emigration. 

One such document, also introduced in 2021, is the SARS Notice of Non-Resident Tax Status. While this letter acts as a ‘golden ticket’ for tax-free peace for SA tax non-residents, it requires applicants to follow a stringent verification process, as mentioned.

However, the introduction of stringent verification processes and strict compliance regulations do not end there. 

Out of the Frying Pan, Into the Fire

In April 2023, SARS introduced the new Approval International Transfer (AIT) Tax Compliance Status (TCS) Pin, which replaced the “Emigration” TCS Pin and the “Foreign Investment Allowance” (“FIA”) TCS Pin. 

The AIT TCS Pin is now the go-to requirement for SA tax residents to transfer more than R1-million of capital abroad, per year, and in the case of tax non-residents, every cent of capital that is transferred out of SA (outside of certain limited scenarios).

Initially, this new “enhanced” AIT process appeared to be simplifying the previous complex one. However, the documentation and information now required by SARS are much more extensive than before, making the process far more meticulous and burdensome. 

One such onerous process is the disclosure of your tax residency status if you are a SA tax non-resident. When you tick this box during the AIT TCS Pin process, you will need to supply SARS with your Non-Resident Tax Status. If you have not yet obtained this, it may frustrate the process or result in a rejection by SARS.

Additionally, throughout the process, one needs to disclose both their local and foreign assets and liabilities (at cost), along with the sources of the value sought to be transferred and documentary evidence in this regard. 

The introduction of the AIT TCS Pin follows the theme of SARS introducing new systems and requirements that contrast the sentiments set out in the 2021 Budget Speech. To a significant degree, these changes have been unavoidable, with SA needing to comply with the measures required by the Financial Action Task Force following the grey-listing of SA. 

Nevertheless, these new changes have placed SA expats at a crossroads – do they maintain their financial ties with SA, or do they cut the cord and leave the SA tax net behind? 

Plan Ahead where SARS is Concerned   

It remains clear that despite the “encouragement” for SA expats to maintain their ties with the country, SARS and the National Treasury continue to implement ever-more stringent legislative and policy changes that appear to steer away from this sentiment. The road ahead largely remains unseen, but it would not be surprising if we see a further drive towards enhancing the SARS toolkit for the taxation of SA expats. 

Regardless of the decision you make when at the crossroads of ceasing your SA tax residency, traversing the current expat tax landscape requires a well-planned roadmap curated by a multi-dimensional team with specific expertise. Always seek expert advice and guidance to navigate these murky waters.

Written by Lovemore Ndlovu, Head of SARB Engagement and Expatriate Compliance; and Thomas Lobban, Head of Expatriate Tax Residency; Tax Consulting SA