Expatriates, beware! If you ceased your tax residency through the Financial Emigration process, you may require substantial reasoning for your return to avoid any repercussions from the South African Revenue Service (SARS).

This is true if you successfully applied to SARS to be recognised as a non-resident for tax purposes and were released from your obligation to declare and pay tax on your foreign income. To cease your tax residency through the Financial Emigration process, you would already have proved objectively to SARS that you intend to remain outside the country on a permanent basis.

If you subsequently return post Financial Emigration then you will need to substantiate why that intention has changed and that your application was not made fraudulently, to avoid any repercussions.

This does not mean you can never come back for fear of being penalised, only that your re-entry should be carefully planned to avoid exposure to tax risk. As when exiting, it is advised that expatriates have a professionally developed roadmap for re-entry, backed by verifiable evidence of their change in circumstances.

Intention is everything

Legally, all South Africans must declare and pay tax on their annual worldwide income, even if they live abroad for an extended period. However, if they can objectively prove to SARS that their intention is to depart permanently, they may be granted non-residency status for tax purposes.

Under this system, they would no longer make submissions to SARS, except for income sourced in South Africa, such as rent earned on local property. 

However, if you harbour an intention to return or known circumstances dictate that you will, you should not pursue tax non-residency through the Financial Emigration process. In this case, alternative provisions, such as a double tax agreement (DTA) between South Africa and your country of residence, may be leveraged if available (albeit this does not automatically occur).

It is always best to approach a reputable tax consultancy for guidance on the ideal solution for your needs.

Things change

Intention can be fickle. If you permanently emigrated, you may decide that the grass is not greener on the other side. Or unforeseen circumstances could disrupt your life plans. You may just become homesick or develop a longing to retire to where your memories are fondest.

In these cases, it is not as simple as booking a ticket back to South Africa and setting a date for your departure. Not, at least, if you are acting wisely.

You may own or have accumulated assets which will now be introduced into the South African Tax system and any persistent foreign income will once again become subject to taxation under South African law.

And, of course, there is the matter of resuming your tax residency and reintegrating into SARS' tax system as smoothly as possible. While the consequences of a misstep can at times be severe, with the correct planning, preparation and professional assistance, you are unlikely to face any repercussions if your cause for return is objectively reasonable.

Roadmapping your return

Developing a roadmap for your return requires several areas of expertise that can only be found at a tax firm that specialises in expatriate tax, emigration and financial reintegration.

Your tax partner should be familiar with SARS processes and the documented evidence it requires to assess the validity of your circumstances. In addition, any such tax firm should have a strong legal component to offer counsel, and legal protection should the need arise.

Unfortunately, many practices without these areas of expertise often give poor advice that could put taxpayers at a disadvantage, so be sure to engage a reputable firm that is known for its track record in this area.

Written by Martin Bezuidenhout, Expat Tax Attorney at Tax Consulting South Africa