New proposal for required documents when ceasing to be South African Tax resident

New proposal for required documents when ceasing to be South African Tax resident

• 30 September 2021
• Tax residence
• The Tax Faculty Tax Specialist

This article relates to the 2021 year of assessment. 

Introduction

South Africa operates on a residence basis of taxation which means South African residents are subject to tax on their worldwide income (subject to certain exemptions) and worldwide capital gains. A non-resident is only liable for tax in South Africa on income derived from a source within South Africa and capital gains arising from the disposal of immovable property or any interest or right to immovable property situated in South Africa. 

On 3 June 2021, the South African Revenue Service (SARS) published details on its website regarding standard and specific documentation required as evidence that a taxpayer has ceased to be a South African tax resident. As the South African tax year for natural persons is 1 March – 28/29 February, this will be applicable for tax returns filed for the year ended 28 February 2021. 

Background

South Africa has had exchange controls in place for many years, to restrict the outflow of funds.  Emigration was, as a result, a process administered by the South African Reserve Bank (SARB). SARB has now handed the baton to SARS.

Prior to 1 March 2021:

• A natural person could cease to be tax resident and pay his or her exit tax (if applicable) without any automatic vetting process being undertaken by SARS (this would only happen if the person was subject to audit for that tax year); and
• A natural person who was an Exchange Control resident of South Africa could undertake a formal process of emigration via SARB.  This was a document-intensive process. It should be noted that persons who are not Exchange Control resident may freely remit funds in and out of South Africa without SARB approvals.

From 1 March 2021:

The SARB process of emigration was replaced by a SARS process, thus shifting the document-intensive process from SARB to SARS;

• Under the new framework, natural person emigrants and natural person residents will be treated the same and are subject to the same calendar year allowance limitations; and
• Non-tax resident taxpayers will be able to transfer certain retirement benefits abroad if they can prove that they have been non-resident for tax purposes for an uninterrupted period of three tax years. The three-year period of non-tax residence does not apply to a person who concluded a SARB emigration process prior to 1 March 2021.

Proposed declaration for ceasing to be South African Tax resident

• Prior to the 2017 tax year, taxpayers were not required to report their current or change in tax residence status to SARS in their Individual Annual Income Tax Return (ITR12).
• From the 2017 tax year, taxpayers have been required to indicate their tax residence status on the ITR12, but not the date on which it changed.
• Recent changes were made to the ITR12 for the 2020/2021 tax year and taxpayers can now indicate the date on which they ceased to be a tax resident of South Africa. SARS has indicated that these returns will be referred for manual intervention by SARS upon submission. SARS will request supporting documents from the taxpayer to support the declaration made.
• Alternatively, taxpayers can inform SARS of a change in their South African tax residence status by submitting the “Declaration of Cease to be a Tax Resident” to a dedicated SARS mailbox. When the declaration is made via email, the declaration form must be submitted together with the relevant supporting documentation. Taxpayers may wish to make the declaration via email in situations when they previously informed SARS that they ceased to be a tax resident and would like confirmation from SARS, or if they did not inform SARS that they ceased to be tax resident in a prior tax year and would like to place this on record with SARS.

All taxpayers are required to comply with the new requirements imposed by SARS. This will require taxpayers to now prove that they ceased their South African tax residence status.  The “Declaration of ceasing to be a tax resident” can now be declined by SARS if one of the following conditions apply:

• The taxpayer does not meet the criteria for ceasing to be tax resident; or
• The taxpayer cannot provide SARS with the relevant materials or the correct relevant materials as requested.

Standard required documentation

• The signed declaration indicating the basis on which the taxpayer qualifies.
• A letter of motivation setting out the facts and circumstances in detail to support the disclosure that the taxpayer has ceased to be a tax resident.
• A copy of the taxpayer’s passport/travel diary.

Additional requirements

In addition to the standard requirements, SARS has published lists of specific additional information to be provided to SARS, to indicate the basis on which the taxpayer ceased to be a tax resident.  These requirements differ, based on which type of residence a person currently holds (ordinarily resident or PPT resident), and taking into account the basis on which residence is being broken (whether a DTA is being relied upon or not).

Conclusion

South Africa operates on a residence basis of taxation which means South African residents are subject to tax on their worldwide income (subject to certain exemptions) and worldwide capital gains. A non-resident is only liable for tax in South Africa on income derived from a source within South Africa and capital gains arising from the disposal of immovable property or any interest or right to immovable property situated in South Africa. 

Link to article source: https://home.kpmg/xx/en/home/insights/2021/07/flash-alert-2021-199.html

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