Expats seeking to terminate tax residency: A simple guide

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As many South Africans take up opportunities abroad, many are considering the implications of their tax residency status.

Terminating tax residency in South Africa can significantly impact on financial obligations, making it essential to understand the process thoroughly.

Steps to Cease Tax Residency

According to Tax Consulting South Africa, when you decide to move abroad permanently, one of the first steps is proving to the South African Revenue Service (SARS) that you no longer qualify as a South African tax resident.

SARS uses two tests to figure this out:

The Ordinarily Resident Test (Intention Test)

This test looks at your long-term plans and ties to South Africa. It’s about where you see your permanent home — the place you return to after traveling.

If South Africa is still your “home base,” SARS considers you a tax resident and taxes your worldwide income.

However, if you’ve clearly moved your life overseas with no plans to return, you might no longer be seen as a tax resident.

The Physical Presence Test (Days Test)

If you don’t pass the first test, SARS checks how much time you physically spend in South Africa. Even if you live overseas, you could still be a tax resident if you spend a lot of time in South Africa each year.

You must not spend more than:

91 days in the current tax year and each of the previous 5 years, and
A total of 915 days over the past 5 years.

If you spend less time than this in South Africa, you might no longer qualify as a tax resident.

What’s the Difference Between Ceasing Tax Residency and Financial Emigration?

According to Courtney Carstens, Expatriate Tax Consultant at Tax Consulting South Africa, ceasing tax residency means SARS no longer sees you as a South African tax resident. You will only be taxed on income and assets within the country, not your worldwide income.

Financial emigration goes a step further, it aligns your tax status with your banking status, converting your South African bank accounts into non-resident accounts and helping transfer your money abroad.

How to Cease Your Tax Residency

Ending your tax residency doesn’t happen automatically, you have to formally tell SARS by following these steps:

Declare your new tax status

Use your SARS eFiling profile to submit a formal declaration that you are no longer a tax resident.

According to FinGlobal, taxpayers can use the RAV01 form on eFiling, inform SARS that you wish to change your tax residency status. Note the date on which you ceased to be a tax resident under the section that deals with Income Tax Liability Details.

Provide evidence – Show proof that you’ve moved abroad permanently. This could include overseas work contracts, proof of permanent residence, certificate of tax resident confirming your tax residency in that country.
Get confirmation – Once SARS processes your request, they will issue a Notice of Non-Resident Tax Status, an official letter confirming your change in tax status and the date it took effect.

What About Exit Tax?

When you stop being a tax resident, SARS treats it as if you sold all your worldwide assets (except property in South Africa) the day before you ceased tax residency.

This is called Exit Tax and works like a “fictional sale.”

Tax Consulting South Africa outlines how SARS calculates the tax by looking at the difference between:

The value of your assets when you first got them, and
Their market value the day before you ended your tax residency.

If there’s a profit (Capital Gain), you might have to pay tax on it.

What is the AIT Pin?

According to Leap Group tax legal advisory, if you want to move large sums of money overseas after ending your tax residency, you need an Approval International Transfer (AIT) Pin from SARS.

This has replaced the old Emigration Tax Clearance Certificate. The AIT Pin shows that you’re following all tax rules and have permission to transfer your money abroad.

Understanding and managing your tax residency status is crucial for South Africans living abroad. Whether you’re simply ceasing tax residency or going through financial emigration, it’s important to follow the correct processes with SARS to avoid complications.