Have you ceased tax residency correctly?

You may have thought that by financially emigrating, you effectively ceased your tax residency in South Africa. Before March 2021, this was indeed the case, and many people believed they had successfully transitioned to being non-residents for tax purposes. However, since the tax laws were amended in March 2021, a new process has been established that might mean you are still classified as a South African tax resident, even if you think otherwise. 

It’s important to note that both financial and tax emigration no longer exist as processes. The discontinuation of these terms in March 2021 means that the previous methods for managing your tax residency status are no longer valid. This change may inadvertently place you back in the realm of South African tax residency until you formally cease your tax residency through the new process with SARS. Being classified as a tax resident can have tax consequences, including the taxation of your worldwide income.  

The key point to understand is that financial emigration no longer exists. Everything related to ending your tax residency is now handled directly through SARS. Here’s what’s going on and the steps you need to take to make sure you are no longer classified as a South African tax resident. 

The Misconception About Financial Emigration 

Prior to March 2021, South Africans living abroad could go through a process known as financial emigration via the South African Reserve Bank (SARB). Many believed that completing this process was enough to signal to SARS that they were no longer tax residents. However, financial emigration only dealt with exchange control; it didn’t automatically change your tax residency status with SARS. 

• Financial Emigration: This process was about changing your status with SARB, not SARS, and it only impacted your financial dealings from a currency control perspective. 

• Ceasing Tax Residency: This is now the only formal process you need to complete with SARS to officially stop being taxed as a South African resident. 

Since March 2021, financial emigration is no longer a valid way to end your tax residency. All matters related to your tax status must now be dealt with through SARS’ formal process of ceasing tax residency. 

Why Are You Still Seen as a Tax Resident? 

South Africa uses a residence-based tax system, which means if you are considered a tax resident, SARS will tax you on your worldwide income, even if you live abroad. 

SARS determines your residency status based on two key tests: 

1. Physical Presence Test: This checks how many days you’ve spent in South Africa over the last five years. If you’ve exceeded a certain threshold, you might still be considered a tax resident. 

2. Ordinary Residence Test: This looks at where your true home is—where you permanently live or plan to return to. 

Even if you left South Africa years ago and went through financial emigration, SARS could still classify you as a tax resident unless you have formally ceased tax residency through the correct process. 

Financial Emigration No Longer Applies—It’s All About Ceasing Tax Residency 

Since March 2021, the only way to stop being a tax resident of South Africa is by following the formal steps with SARS. If you’ve moved abroad and want to make sure SARS no longer taxes you on your worldwide income, you need to go through the process of ceasing tax residency. Financial emigration no longer counts. 

Steps to Cease Tax Residency with SARS 

If you want to officially stop being a South African tax resident, here are the steps you need to follow: 

1. Submit the ITA77 Form 

This form, called the “Declaration of Cease to be a Resident,” tells SARS that you no longer meet the criteria for being a tax resident. 

2. File a Final Tax Return 

You’ll need to file a tax return for the year in which you stopped being a resident. This return will declare your income up to the date you ceased residency. 

3. Exit Tax on Worldwide Assets 

When you cease tax residency, SARS may charge you an “exit tax” on your worldwide assets as if you sold them just before your residency ended. This tax doesn’t apply to immovable property in South Africa, such as land or houses, but does apply to most other assets. 

4. Get Confirmation from SARS 

After completing these steps, you can request written confirmation from SARS that they now recognize you as a non-resident for tax purposes. 

Common Misunderstanding 

Many South Africans are unsure about the difference between financial emigration and ceasing tax residency. The misconception comes from the fact that, before 2021, financial emigration was commonly understood to be a way of cutting tax ties with South Africa. However, since the rule changes, financial emigration no longer plays any role in tax residency. Now, you must follow the SARS process to cease residency if you want to stop being taxed on your worldwide income. 

Final Thoughts 

There’s been a lot of confusion about tax emigration, financial emigration, and ceasing tax residency. The key thing to remember is that financial emigration no longer applies and will not affect your tax status with SARS. If you want to stop being taxed as a South African resident, you need to formally cease your tax residency by following the correct process through SARS. 

If you’re feeling unsure or overwhelmed by this process, don’t hesitate to reach out or leave a comment. This is a complex area, and getting professional help can make sure everything is done correctly, giving you peace of mind.