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Written by: Jacques Fourie

Last Updated: 18 July 2024

The tax practitioners guide to ceasing tax residency status with SARS.

As a practice, we have received an influx of calls from anxious taxpayers concerned with being taxed on their foreign income earned while outside of SA. Many are confused and need to know what needs to be done to be protected from being taxed in South Africa on their worldwide income. Income that may have already been taxed in the host country.  We have done research to understand the information published on the internet and what is said by others. We have noticed that many recommend financial immigration as an option which is no longer available. Many feel that they have to formally immigrate to avoid being taxed in South Africa. At FMJ Tax Consulting, we also assist in foreign income exemptions and specialize in assisting clients with any tax-related queries.

Reserve Bank Exchange Control circular No 6/2021 clarifies that from 1 March 2021, all applications would be directed though SARS and that SARS will not require the MP 366(b) form.  

As such, an application is made to SARS statins that a taxpayer’s residency has changed and that one is no longer tax resident of South Africa. SARS would then request supporting documents to confirm this application. Documents include the alike of one’s visa permissions, proof of foreign residence, a tax residency certificate from the tax authorities in the host country and the alike.  

Once these documents are submitted, SARS may take up to 21 working days to review the application and issue formal correspondence if they agree that a taxpayer has ceased tax residency in South Africa.  

It must be noted that a taxpayer’s situation must fit that of being a non-tax resident of South Africa as otherwise, a taxpayer would have to revert to domestic legislation for relief against foreign sourced income such as section 10(1)(o)(ii) that exempts up to R1250 000 foreign employment service income read along with Section 6(quat)(1) which permits a percentage of foreign taxes paid in the other country to be offset with one’s South African tax liability where ceasing residency is not possible.  

Many cases are resolved by the application of a double tax agreement as entered into by the South African government and the government of the foreign host country. A double tax agreement covers the majority of cases as a person generally only has once residence at a time. Such residence is either in South Africa or in another country. Where a person’s residence is could become a technical matter. For example, where a taxpayer lives in South Africa but travels to one of the African countries to work there but returns to South Africa frequently, then it would be hard for a taxpayer to argue that his only home is in the host country. With the next case, a person may place long-term tenants in their South African property and then there would be a strong argument that the taxpayer does not have a residence available to themselves in South Africa. Each case must be judged based on its own unique situation.   

Please consider the above and below facts before deciding a course of action.

  • If a person intends to come back to SA, they would probably remain a tax resident. Thus, financial immigration may be challenged. (Whether outside for SA for a few years or a shorter period)
  • SARS may apply 2 tests to determine if a person is a resident for tax purposes. It is if a person is an “ordinary resident” or a resident by means of their “physical presence” in South Africa. Various court cases deal with who is an ordinary resident while physical presence in South Africa is a lot easier to determine. If physically present in South Africa for more than 91 days in the current and 5 preceding tax periods and more than 915 days in the preceding 5 years preceding the current period of assessment, then the physical presence test would be positive and a person would be a resident when first meeting the criteria.
  • An ordinary resident is, subject to various court cases and the specific circumstances an individual finds themselves in, where a person settles down from his “wonderings”. This means if a person works abroad but intends to come back to SA, then a person would be an ordinary resident of SA as they would “settle down” after their wonderings. Various other factors may come into play such as the action or omission of selling property including fixed property, the extent of setting oneself up in another country and other actions compatible with being the real home being in a country other than South Africa. A definitive decision to immigrate to another country is required to cease being an “ordinary resident”. Due to the technical nature of this assessment, each case’s detail has to be reviewed and an opinion could be formulated, however, may still be subject to approval by SARS and which may be disputed in the court system up to the supreme court of appeal.
  • Court cases proving more clarity is Cohen vs CIR, CIR vs Kuttel and Davies and another vs HMRC
  • If a person intends to leave SA permanently, it would be proper to immigrate financially. However, there are advantages and disadvantages in doing so. Some consequences are, costs of immigration, deemed disposal of world-wide assets which triggers capital gains, SARS being more likely to not tax income in excess of the 1 million exemption for employment income subject to not being an “ordinary resident” or being physically present in SA for the test to be positive, residency status updated with banks, becoming subject to withholding taxes on interest income, sale of fixed property, etc.
  • If a person intends not to come back to SA, then the financial immigration process should be followed so that the immigration is documented. An immigration agent should be appointed for such application and it would be ideal to wrap up any remaining assets in SA, although not a requirement as the test is based on various factors acting as a guideline and with no definitive criteria that must be met. Again, a case by case analysis is required.
  • After the above is done, an application could be made to have cash withdrawn from SA (Which exceeds the amount permitted without a clearance, currently R1 million) Generally, retirement funds would be withdrawn / transferred, properties sold, and personal assets disposed of. These funds are then generally moved out of SA.
Further factors that could be considered:
  1. Extent of economic tentacles in South Africa
  2. Amount of time spent in SA after immigration
  3. Status of individual in the other country (Work permits, residency status, etc)
  4. What was done with personal belongings and where they are now (Including fixed property)
  5. Family situation
  6. Frequency of visits in SA and the purpose of such
The above factors are not exhaustive and the answers to these and other questions would only serve as a guide. Contact FMJ Financial Services if you would like to book your personal guidance consultation with Jacques Fourie. (please note: consultation rates will only be emailed to enquiries)

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