Ceasing Tax Residency – Where we are and where we came from

South Africa has been a residence-based tax system since 1 March 2001 and South Africans were subject to the ceasing of their tax residence since this date. However, SARS has only implemented more stringent measures to ensure that South Africans who are emigrating do not fulfil the requirements of the South African residence tests in most recent years.

The previous process of Financial Emigration to obtain the necessary SARS clearance and to be noted as a non-resident for exchange control purposes was the only “formal” process available to emigrants to prove that they met the requirements to successfully emigrate from South Africa.

The Financial Emigration process was changed when the concept of “emigration” as recognised by the Financial Surveillance Department was phased out on the 1st of March 2021.

Since this change has taken effect SARS has also made changes to their processes to inform them of your non-residence. SARS has since implemented a process to apply for a “Notice of Non-Resident Status” letter whereby your factual situation needs to be explained in full to prove that you do not fulfil the South African residence tests. An array of supporting documents also needs to be provided to prove your day-to-day living in a foreign country and that South Africa is not your most permanent home to where you frequently return any more. Once this is explained and proven, your non-residence status will be reflected on your efiling profile and on SARS’s systems as a non-resident. The process is now commonly referred to as “Tax Emigration”.

If you completed the process of “Financial Emigration” correctly and obtained the necessary documents within the process, you have done the necessary to formalise your non-residence for exchange control and tax purposes in South Africa. These processes were the only ones available to South Africans who were formally emigrating from the country, and the new process of "Tax Emigration", which ceases your South African tax residence and provides a legal justification, was only made available after 1 March 2021.

Even if the old process of “Financial Emigration” was done correctly, it does not mean that the non-resident status is currently noted with SARS due to their change in system and processes. However, it also does not mean that you are not a non-resident for tax purposes.

A taxpayer’s tax residence status in South Africa is dependent on their intention and their factual situation to support this intention to be a resident or not. In general, if you deem South Africa your most permanent home and country to where you will always return after any wanderings, you meet the requirements of the “ordinarily residence test” and are still a resident for tax purposes in South Africa. If your intention is not in line with the aforementioned, you are not a tax resident in terms of the “ordinarily residence test” and will only become a resident once you fulfil the requirements of the “physical presence test”.

If you are concerned about your non-resident tax status in South Africa, after previously Financially Emigrating under the old rules, it is advisable to obtain the new “Notice of Non-Resident Status” letter to ensure you are formally recognised as a non-resident at SARS. This document will serve as your first line of defence going forward because it specifically confirms your non-residence and reflects your exact ceasing date when you became non-resident. The document will also be important to further withdraw any policies from South Africa and receive an inheritance as a non-resident.