Roodepoort, February, 21, 2025: South Africans intending to permanently relocate or undertake extended employment abroad may consider ceasing their tax residency. This enables them to avoid taxation on their world-wide or global earnings. To accomplish this correctly, it is essential to comply with the specific criteria established by the South African Revenue Services (SARS). Understanding the implications of relinquishing your tax residency in South Africa is equally essential.
Terminating tax residency involves no longer being classified by SARS as a South African tax resident, thereby subjecting only income earned within South Africa’s borders to taxation. This includes all investment income, including earnings from a stock portfolio. Once tax residency is terminated, foreign-sourced income is no longer subject to taxation in South Africa; however, capital gains tax (CGT) exit charges might still be applicable.
If an individual has been granted non-resident taxpayer status and earns interest through a South African bank, the interest income from these banks will be fully exempt from taxation.
Who Qualifies for Tax Residency?
You may qualify to end their tax residency if one or more of the following criteria is met:
Permanent emigration occurs when an individual permanently departs from South Africa, establishes residence in another country with no intention of returning, and possesses the ability to reside in that country indefinitely.
Ordinarily Resident Test – No longer see South Africa as your principal home or primary place of return, this may apply if: Your financial and personal ties to South Africa have been severed or you have acquired permanent residency or citizenship of another country.
Financial Emigration Under Pre-2021 Rules – Financial Emigration Before 2021 Changes – If you left South Africa through the Reserve Bank prior to March 2021, you might have already ended your tax residency.
Tax residency by virtue of a DTA Tax Residency Outside South Africa – If you are recognized as a tax resident of another country under a Double Taxation Agreement (DTA), you may request to terminate your South African tax residency. To substantiate this, the taxpayer must demonstrate that their sole permanent residence is situated in the other country and that they do not maintain any permanent residence in South Africa. If this criterion is not satisfied, additional specified criteria applicable to that particular DTA must be fulfilled.
Tax Residency in Another Country – If you have been recognized as tax resident of another country under a Double Taxation Agreement (DTA), then you may apply to discontinue South African tax residency.
Step-by-Step Guide to Cease Tax Residency
Step 1: Establish Non-Residency Status
To verify that you are no longer a resident, you must present proof of relocation and the establishment of a new residence abroad. This entails obtaining housing in the foreign country, thereby formalizing residency outside of South Africa. Acquiring property is not a requirement for establishing permanent residency in a foreign country. Individuals are required to present proof of holding a residence permit in the respective country. A visa with an adequate validity period to support residency requirements should suffice. Ensure you retain a copy of your South Africa exit stamp.
Step 2: Submit Declaration to SARS
Submit the completed RAV01 form via e-Filing to update your status. Similarly, submit a Tax Residency Cessation Request to SARS, ensuring it is supported by relevant documentation, including foreign tax residency certificates, a detailed explanation of the grounds for claiming non-resident status, and proof of the individual’s capacity to reside abroad, to facilitate the update of the taxpayer’s residency status in South Africa.
Upon approval, SARS will issue a letter confirming one’s non-resident status.
Step 3: Submit tax return including a capital gains tax (Exit Tax)
SARS considers relinquishing your tax residency status as the equivalent of disposing of worldwide assets, thus incurring Capital Gains Tax (CGT). Therefore, an exit tax could apply depending on their market value; with certain exemptions such as South African property or retirement funds applying.
This should be filed along with the next return when the tax season commences.
Step 4: Review annually
If the application was submitted under a DTA, the taxpayer should review any changes to their circumstances on an annual basis prior to filing the next return. In certain instances, taxpayers plan to return to South Africa, or the host country has not yet granted them permanent residency in the foreign jurisdiction. Subsequently, taxpayers are required to compile a comprehensive annual summary of their income and report it to SARS as exempt earnings. Confirm that this step is taken only after SARS has approved the update to your tax residency status. Additionally, do not mistake this for Section 10 income, which requires an application for exemption and is presently capped at an annual limit of R1,250,000. This income must be reported to SARS as exempt income, to which no deductions, including those under section 10, apply.
Tax Implications When Ceasing Residency
Upon departing South Africa, only income sourced within the country—such as rental income from South African properties, foreign dividends, capital gains, and other earnings managed by a South African fund—will be liable for taxation in South Africa.
Kindly ensure the submission of your annual tax return, as failing to do so may result in unnecessary penalties.
Please note that retirement funds can be accessed after three years of non-residency; however, they will be subject to applicable taxation.
Final Thoughts
Ceasing tax residency in South Africa involves a complex process, highlighting the importance of following the correct procedures to ensure accurate updating of tax residency status and to prevent any potential penalties from SARS. Consulting a tax practitioner is crucial for effectively navigating this process, ensuring compliance with relevant regulations, and providing confidence that foreign income will not be subject to double taxation in South Africa.
Video: A Step-by-Step Guide to Ceasing Tax Residency in South Africa
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