Ceasing SA Tax Residency: Understanding the “Ordinarily Resident” Test
There are many reasons South Africans look for work opportunities overseas. Whether it’s the appeal of the international job market, the chance to broaden their experience, or the opportunity to put their skills to the test on a global stage, relocating abroad offers exciting possibilities and new opportunities for growth.
The adventure of moving abroad can be exciting and overwhelming, and your tax obligations may be the last thing on your mind before you go. Unfortunately, many South Africans emigrating believe that their personal tax responsibilities to the South African Revenue Service (SARS) automatically end once they leave the country. However, SARS does not work on physical location alone, and will look at whether you still qualify as a tax resident under specific rules.
If you’re looking for a job abroad or getting ready to work overseas, here’s what you need to know about ceasing your tax residency status.
What Does “Ordinarily Resident” Mean?
“Ordinarily resident” is a legal term that SARS uses to determine whether you are considered a South African tax resident and therefore liable for tax on your worldwide income.
Being “ordinarily resident” in South Africa is about more than where your home is based at the moment or where you currently live. It is rather your “real home”; where your life, your family, your social and business ties are based. SARS considers where you usually expect to return from your wanderings.
Since 1 March 2001, SARS changed how it taxes individuals. Prior to this, South Africans were mainly taxed on income earned in South Africa. Now, they operate on a residence-based tax system, which means SARS taxes individuals based on where they are considered residents, not just on where their income is earned.
If you’re a South African tax resident, SARS taxes your worldwide income, which is money you earn in South Africa and abroad. This is done to ensure a system that is more consistent and fair. However, if you’re a non-resident, SARS only taxes the money you earn from sources within South Africa. This can be anything from local property, investments or income from a South African employer.
How to Determine your Tax Residency
There are two primary tests that determine whether you are a South African tax resident. The first is the Ordinarily Resident Test, which assesses whether your permanent or habitual home is in South Africa. If it’s determined that a person is not an Ordinarily Resident in South Africa, then the Physical Presence Test is applied to determine tax residency status.
SARS doesn’t rely on just one factor to decide if someone is ordinarily resident. Instead, they look at the overall picture of your life and ties to South Africa. Here are a few of its main considerations:
The type of visa you have and whether you hold permanent residence overseas
A certificate or letter from another country showing that you are considered a tax resident in another jurisdiction
Details of any property that you still have available in South Africa, indicating whether they are being used.
Ongoing business or investments in South Africa
Where your spouse, children, or other dependents live
Details of social interests, such as memberships in clubs or societies, gym contracts, and where your personal belongings are located.
How often you return to South Africa, and the reasons for those visits
Simply leaving South Africa is not enough to be an Ordinarily Resident. Your actions must support your intention not to return by demonstrating to SARS with actions that reflect you have permanently left the country and established your “real home” or “centre of interests” elsewhere.
Tax Implications of Ceasing to be an Ordinary Resident
When you cease to be a South African tax resident, SARS treats it as if you have sold all your domestic and international assets. This includes your shares, investments, and other personal property, but excludes immovable property located in South Africa.
💡 Expert Tip:
It is important to consider the Capital Gains Tax (CGT) implications on each of your assets when deciding to immigrate. Once you’ve officially ceased to be a tax resident of South Africa, you will generally no longer be obligated to pay tax on your income from abroad, but only from a South African source. South African source income includes for example, rental income from property in SA or income from a South African employer.
Checklist for Ceasing SA Tax Residency
Notify SARS by completing the Registration, Amendments and Verification Form (RAV01) via the eFiling website. This can be done before you become a permanent resident or citizen of another country. However, this still requires you to demonstrate your intent to leave South Africa.
Proof of foreign residence which can include a lease agreement, property purchase, or utility bills showing your main home is now abroad.
Visa or work permit that offers documentation confirming legal residence or permission to work in your new country.
Personal and family documentation are documents that will need to be included. These are passport stamps, travel records, or proof that your family/dependants have moved with you.
Letter from foreign tax authority to state that you are seen as a tax resident in their jurisdiction. (SARS has put emphasis on this and will not allow immigration without this letter)
Consider Professional Advice
Navigating the process of ceasing to be a tax resident can be overwhelming, especially if you have significant assets or investments. If you require guidance on the tax implications or need further advice, seeking professional assistance can make the process smoother.
Eqeight is here to help you plan and comply with SARS requirements, allowing you to enjoy a stress-free transition abroad.
