Simply missing home will most definitely not be a convincing bona fide reason for the South African Revenue Service (SARS) to accept the reversal of your status to that of a tax resident if you have previously ceased tax residency.
Individuals who are emigrating from South Africa need to declare to SARS their intention to reside abroad indefinitely and update their tax residency status to that of a non-resident taxpayer, which comes with certain tax benefits. If the individual later wants to return to South Africa permanently and revert to a ‘normal’ tax resident, SARS will want to understand the reasons for the change in their original intention to live overseas.
The status of a non-resident taxpayer favours such individuals residing abroad, as they are only taxed on local South African sourced income (such as rental income from property) by SARS and not on worldwide income. Non-residents are also generally exempt from donations tax and estate duty. Naturally, SARS wants to ensure that it has not forfeited taxes due or that the status of a non-resident taxpayer was not misused to avoid a legitimate tax liability.
SARS may need some convincing
Non-resident taxpayers planning to repatriate back to South Africa will need a carefully constructed and robust narrative with convincing reasons as to why they are returning and recommencing tax residency.
In daily practice tax attorneys see an increase in SARS querying the reasons for returning and asking for an explanation from expats to reverse their non-resident tax statuses. This request is often vaguely worded and must be answered carefully to not make an unfortunate disclosure that can cost you as the taxpayer dearly.
SARS may also request supporting documents to substantiate the reasons provided. This can range from medical motivation if returning for health reasons and treatment, proof of employment termination abroad, or the inability to secure permanent residence or citizenship abroad. An increasing number of South African expats are affected by Saudization and Emiratisation policies, which reserve more jobs in Saudi Arabia and the United Arab Emirates, respectively, for local citizens.
There is also no hiding from SARS once you are back in South Africa. The Tax Man will invariably become aware of your financial dealings – whether through transactions on local bank cards and accounts, transferring funds into South Africa or purchasing immovable property.
Onus of proof is on the taxpayer
An estimated 1 million South Africans reside abroad at present. SARS data indicate that between the 2017 and 2023 years of assessment, some 38 000 taxpayers ceased tax residency while figures from Statistics South Africa’s latest Migration Profile Report show in 2022 (the latest available data) almost 27 000 South Africans returned home.
In light of these figures one can assume many expatriates have not formally ceased tax residency and may be unaware of the tax consequences of being treated as a tax resident. Returning expats who cannot prove their non-resident status for the time spent abroad, may face quite an uphill battle, including a potential tax bill for amounts deemed payable by SARS.
The onus is on taxpayers who ceased tax residency, to obtain the formal Notice of Non-Resident Tax Status confirmation letter from SARS, verifying their status as non-resident taxpayers and reflecting their cessation date. Ensure you obtain this letter to protect your foreign income from day one whilst abroad.
Emigration takes planning, but so does repatriation
This so called “Golden Letter” has a built-in obligation on the expat who have returned to South Africa to notify SARS within 21 business days of any change in their tax residency status. Therefore, once you know you want to return to South Africa, start planning and consider the narrative of why you have decided to return.
Give yourself sufficient time to consult tax experts where needed, as careful planning around asset ownership can be highly beneficial. Certain tax treatments may apply to qualifying assets held by the expat. According to the Income Tax Act, No. 58 of 1962, when an expat recommences South African tax residency, their worldwide assets are drawn back into the South African fiscus.
Worldwide assets re-introduced into the South African tax net when one recommences tax residency, can have serious tax complications with capital gains tax and estate duty in future, unless careful asset ownership structuring is utilised.
In certain cases, enlist assistance from multidisciplinary teams of seasoned tax attorneys and chartered accountants to capitalise on unique opportunities to explore the creation of suitable asset preservation structures, such as trusts, before recommencing your tax residency.
Richan Schwellnus
Nicolas Botha
