Ceasing of Tax Residency
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Living abroad offers exciting opportunities for personal and professional growth. However, amidst the adventure and new experiences, it’s crucial not to overlook the matter of taxes. For South African citizens, understanding how tax residency works can significantly impact their financial obligations and planning.
Tax residency determines how much tax an individual owes and to which country that tax is paid. For South African tax residents, tax is levied on worldwide income, encompassing earnings from both domestic and foreign sources. This means that even when living abroad, South African tax residents may still be liable for taxes on their global income.
Simply leaving South Africa doesn’t automatically change one’s tax residency status. Even expatriates must be diligent in adhering to tax regulations. Failure to address tax residency status formally can lead to potential issues, including double taxation.
In August 2022, The South African Revenue Service (SARS) published new requirements regarding the process to follow when ceasing South African tax residency. These changes include altering the options for how a taxpayer can declare breaking tax residency. Additionally, all individuals who cease tax residence must update the Registration Amendment and Verification (RAV01) form on the SARS eFiling platform. These updates are crucial steps in ensuring compliance with tax regulations and avoiding penalties.
To transition from being a South African tax resident to a non-resident, individuals must undergo the necessary legal procedures through the South African Revenue Service (SARS). This involves notifying SARS of the decision to become a non-resident for income tax purposes and updating the RAV01 form on the SARS eFiling platform. Failing to do so can result in continued tax obligations as a resident.
One significant consequence of becoming a non-resident is the deemed disposal for Capital Gains Tax (CGT) purposes. This means that individuals are considered to have sold their worldwide assets on the day before they become non-residents. However, certain assets, such as immovable property in South Africa and personal use items, are excluded from this deemed disposal.
The advantages of ceasing South African tax residency are notable. Non-residents are only taxed on income sourced from South Africa. Additionally, capital gains tax is limited to fixed property located within South Africa and assets of permanent establishments. Furthermore, non-residents are exempt from Estate Duty on their estates.
Maintaining compliance with tax regulations is imperative for South Africans living abroad. Tax residents are legally obligated to submit annual tax returns to SARS, declaring both local and foreign earnings. Failing to formally cease South African tax residency can lead to automatic classification as a tax resident by SARS.
Individuals must promptly notify SARS of any changes in their tax residency status, typically within 21 days. Failing to do so can have various implications, including adjustments to provisional tax payments, penalties, and interest for the shortened year of assessment.
In conclusion, understanding tax residency is essential for South Africans living abroad. By navigating the relevant legal processes, updating the RAV01 form on the SARS eFiling platform, and adhering to tax regulations, individuals can optimize their financial situation and ensure compliance with both South African and international tax laws. If anyone needs assistance in this area, they must please reach out for professional guidance and support.
