Tax law is an incredibly complex area and there is no one-shoe-fits-all plan on how best to navigate South African tax when moving or living abroad.
The problem we continue to see in our dealings with clients or family members who have left the country, is that they potentially face a hugely complex and often costly exercise when they wish to take money out of South Africa.
Most people think that if they left SA many years ago and have paid tax in another country, the tax link with SARS is broken. To put it simply, as far as SARS is concerned the link is not broken!
The tax situation around leaving SA is far more complex than most people realise and we recommend that everyone who has plans to move should check with a tax adviser before going overseas.
Sit down with a tax adviser to understand whether or not you will be regarded as a South African tax resident. This may be the case even if all your income is earned offshore and you live in a foreign country permanently.
If you meet the non-resident criteria with SARS, we recommend that you fill out the relevant forms to inform SARS to deregister you for South Africa tax, to avoid tax headaches in future.
Should your tax advisor advise that you will continue to be regarded as a tax resident based on your particular circumstances, then we recommend that you continue to submit tax returns in SA until you meet the non-resident requirement.
It is vital that your tax adviser provides information on this matter to you upfront and on a continuous basis so that you know when your resident status changes.
Once you meet the non-residence requirement, then you should apply to SARS for deregistration.
There are many factors involved that will determine whether a person is considered a tax resident or not and you need to tread very carefully.
You can happily live and work overseas and not encounter a tax issue for many years, but if you are awarded an inheritance or when you want to cash in an old pension fund benefit left in SA, you will not be able to transfer this money overseas without a tax clearance.
At this point you could potentially face the following issues:
- Penalties for not submitting annual tax returns since you left the country;
- Penalties and interest for failing to provide the right information to SARS; and
- Penalties and interest for not paying capital gains tax (essentially an exit tax) on your worldwide assets, from the day that you became a non-tax resident.
Everyone’s situation is different and the solutions for those who find themselves with a tricky tax situation, years after leaving South Africa, will depend on the individual scenario.
Veritas makes use of tax professionals to help us guide our clients in this area. To keep your tax life simple, it is best to be a tax resident in only one jurisdiction.
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