SARS has started to make good on its promise in the 2020 Budget Review by enhancing their verification and audit processes to accurately review the compliance and tax statuses of South Africans abroad.

The first indication of this was SARS’ issuance of letters confirming taxpayers’ non-residence statuses at the end of 2021. These letters can only be obtained when the taxpayer has followed the correct formal procedure to cease their tax residency. 

Thereafter, we saw the greying out of the non-resident “tick-box” on tax returns for the 2022 year of assessment, with additional information required by SARS to verify the taxpayer’s status before enabling them to file as a tax non- resident.

Increasingly more onerous to prove non-residency

As a Top 6 tax return submissions practice, we are privy to a large number of SARS verification requests, allowing us to gauge the extent of a SARS audit and the authority’s ability to investigate and verify a taxpayer. We have seen a recent rise in these expatriate audits from SARS, and many different iterations thereof. 

These audits follow the principle that the burden of proof rests upon the taxpayer. The significantly more intense SARS verification processes, seen at different stages of the tax non-residency declaration process, show that this principle is definitely being followed, and sharply at that.

How does SARS monitor compliancy from a residency perspective?

SARS generally monitors compliance in two ways: verifications and audits.

In each case, the information disclosed on one’s returns is compared to their financial and accounting records, as well as other supporting documents. 

Verification of whether the taxpayer qualifies to be a tax non-resident is the usual first step when engaging with SARS and is determined with reference to the documentation and accompanying disclosures provided in support of the taxpayer’s permanent emigration. 

In contrast to a verification, a SARS audit looks more closely at the taxpayer's financial and accounting records and/or supporting documentation to verify if the taxpayer's tax position has been accurately stated to SARS. This is usually a much more invasive process than a verification by SARS. 

An audit, in relation to one’s non-resident status, would be a look into whether the taxpayer complied with the requirements of the applicable tax legislation when the taxpayer made the declaration into their residency, with sufficient documentary and other objective support for the non-resident position. This should be understood to be an investigation by SARS in respect of suspected non-compliance.

It is important to note that these verifications and audits are implemented to ensure that the taxpayers factual matrix supports their declaration of non-residency.

Why is the increase in verifications and audits of importance?

The increased and more stringent verification process implemented by SARS has made it clear that this declaration process should not be initiated hastily and without expert guidance as it will lead to unnecessary rejections.

The process to cease on residency was never a simple task, but it has become increasingly more onerous to finalise and to obtain the required proof of one’s non residency status.  

With the above being said, it has become ever clearer that South Africans abroad need to ensure that their non-residency is correctly reflected on SARS’s system and that they obtain official confirmation from SARS. 

What is a non-resident confirmation letter and why is it important?

The non-resident confirmation letter issued by SARS provides the taxpayer with security in the midst of a marked increase in verifications and audits. 

This letter likewise serves as conclusive confirmation of a person's non-tax residency, and it also specifies the effective date of your tax non-residency. Therefore, also dispelling the myth that you cannot backdate your financial emigration.

The diligent approach will be to obtain this letter, in order to re-verify your non-resident status with SARS. This document would also serve as a non-resident taxpayer's first line of defence after ceasing their South African residency, in the event of a later SARS investigation into their residency. More importantly, it would be their 'shield and armour' against any future tax liability on their non-South African sourced income.

It is suggested that you consult with an expert in expatriate taxation regarding your residency status and the required process to be followed as the room for error has substantially decreased.

Written by Nikolas Skafidas, Tax Diagnostic Specialist at Tax Consulting SA; and Martin Bezuidenhout, Expatriate Tax Attorney at Tax Consulting SA