If you’re a South African living and working abroad, changes to the Income Tax Act might see you liable to pay income tax to the South African Revenue Service (SARS) on your worldwide earnings where they exceed R1.25million. Legislative amendments closed the foreign income exemption loophole to give SARS the authority to cash in on your worldwide employment earnings. Furthermore, unless there’s a double taxation agreement between South Africa and the country where you’re employed, you might need to cough twice for two different tax authorities. Yikes! So how do you avoid this situation? Simple: if you’re not a South African tax resident, you’re not liable for tax. What does this mean? You’ll need to break up with SARS by terminating your tax residency. Let’s take a look at the practicalities of how to deregister with SARS.
SARS income tax deregistration: the why and how
Obviously if you no longer live in South Africa, you’re not going to be keen on paying tax to SARS on your foreign employment earnings. The solution to this double tax grab problem is called tax emigration. What does this mean? Essentially, you’re going to terminate your relationship with SARS once you’ve squared everything away and you’re in the clear, taxwise of course. However, before you fire up your search engine to look for SARS income tax deregistration forms, it’s worth noting that you’ll need to meet a number of requirements in order to be eligible to complete the process of tax emigration in order to terminate your tax residency.
How do you know if you are a South African tax resident?
SARS will consider you to be a South African tax resident (and thus liable to pay income tax even if you’re not living in the country) if you meet one of two tests:
- The ordinarily resident test OR
- The physical presence test AND
- You are not considered to be the exclusive tax resident of another country because of a double tax agreement.
The ordinarily resident test is a location test concerned with where you hold your primary residence, where your assets lie and where your family is based. Ticking the boxes for this test means you’ll be labelled a South African tax resident, no matter how many years you’ve spent working overseas.
The physical presence test is a time test concerned with the amount of time you spend with your feet on South African soil. To meet the requirements of this test, and be considered a tax resident, you will only need to be home for:
- 91 days or more in the year of assessment
- 91 days or more in each of the previous five years of assessment
- 915 days in total during the five previous years of assessment
If these time requirements are not fulfilled you cannot be presumed to be physically present in South Africa, which means that you will be considered a non-resident for tax purposes. By virtue of the physical presence test, you can cease to be a tax resident when you are physically outside of the Republic for a continuous period of more than 330 full days.
However, terminating your tax residency is something you must consider carefully. Deregistering with SARS isn’t an easy breakup, because when you terminate your tax residency, you are deemed to have simultaneously disposed of all your worldwide assets, which triggers a capital gains tax liability on all your worldwide assets (excluding immovable property in SA) at the relevant market rate.
How to deregister from SARS income tax
Wondering how to notify SARS that you no longer wish to continue the relationship? Are there SARS deregistration forms you have to fill out? Thankfully the paperwork isn’t too extensive, and there isn’t a specific official form to deregister from paying income tax, per se. If failure to meet the legislative tax resident requirements isn’t enough and you want proof that it’s over, you have the option of changing your tax residence status by making a declaration on your tax return.
That’s correct. SARS will need to be informed that you wish to deregister from income tax because you are now a non-resident. Fortunately, you won’t have to queue at a branch to do it, you can do it online. Informing the eFiling software wizard that you have “ceased to be a tax resident” is sufficient, along with the effective date. If you want to ensure all ties are properly cut, you could even give SARS the boot when you apply for a tax clearance certificate when you emigrate from South Africa.
FinGlobal: cross-border financial services for expats
Need assistance with your tax emigration or have concerns about expat tax liability? FinGlobal has you covered with a specialised team of tax experts, certified international financial planners, and financial emigration professionals ready to answer your questions and help you plan your next moves, seamlessly. We’ll help you take the stress out of deregistering with SARS, assisting you every step of the way with tax clearance, tax refunds, tax emigration and everything else expat tax related.
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