South African expatriates are facing tax residency confusion that could lead to serious implications. Photo: Ziphozonke Lushaba/IndependentNewspapers
South Africans living and working abroad have been warned to check their tax residency status with Sars to avoid any serious tax implications.
The South African expats who are working or residing overseas may could potentially find themselves liable to penalties with the South African Revenue Service (Sars) if their tax residency status was not in order. The expats have been urged to check their status ahead of the tax e-filing season.
Lovemore Ndlovu, the Tax Consulting SA head for SARB Engagement and Expatriate Compliance, said that after recent system changes at Sars involving the declaration of tax residency status, many SA expatriates are discovering that the Sars eFiling platform still sees them as SA tax residents, despite their emigration being formalised before.
He said some expats have the Sars Notice of Non-Resident Tax Status Letter which confirms that they are no longer SA tax residents, but eFiling tells them another story.
Ndlovu said that this contradicting information mainly impacts expats who formalised their emigration through:
– the South African Reserve Bank (Sarb) pre-2021
– those who completed tax emigration through SARS lately
– expats who left the country before the residency tax-based system was introduced in 2001.
“Affected expatriates must take note of possible huge tax implications if Sars sees you as a tax resident while in fact you are a non-resident, because the two are treated differently,” Ndlovu said.
“South African tax residents working abroad, pay tax to SARS on their worldwide income, while non-residents are only taxed on their South African sourced income.”
According to Ndlovu, wrong tax residency status on the Sars eFiling platform followed after the tax man introduced a 2023-update to the Registration, Amendments, and Verification Form (RAV01).
The form is used by taxpayers to update personal and tax-related information.
The new version of the RAV01 has a dedicated section for tax residency status changes.
The update is a direct response to the growing need for regulatory compliance and reflects intention from Sars to centralise residency declarations in line with international tax standards.
Ndlovu said: “It seems previous declarations of being a non-tax resident where expats just ticked a box on their annual tax return as to this status, did not necessarily do the trick when the updated form was introduced.”
“It could be that information on prior years’ auto-assessments incorrectly reverted some taxpayers’ status back to that of tax resident on eFiling.”
It is essential that all SA expats verify their status and cessation date of tax residency on Sars eFiling to ensure they are formally recognised as non-tax residents.
This could help avoid ongoing obligations, taxation of their foreign-sourced income, and potential penalties.
This means that SA expats should review their tax residency status and providing extra information to the tax man as required by the updated RAV01 verification and audit process.
Ndlovu said that non-tax residents are advised to check their status at least a few months before the opening of the tax filing season which will give them time to rectify any incorrect information with the tax authority.
According to Ndlovu, with the RAV01 update, the tax man has made the process for expats to notify Sars of their change in residency status much easier.
“This tax residency declaration section makes it easier for Sars to monitor taxpayers’ status and detect inconsistencies in residency declarations,” Ndlovu said.
“Before submitting this form, expats must ensure all their tax filings are accurate and up to date, as discrepancies could trigger audits, penalties, or even denial of non-residency status until rectified.”
The RAV01’s residency audit and verification include questions on:
– the expatriate’s physical presence
– family ties
– financial interests
By asking these targeted questions, South Africa’s tax authority aims to identify “accidental residents” or those who might misinterpret their residency status or tax obligations.
Understanding the differences between financial and tax emigration is crucial for expats looking to formalise their status, avoid double taxation, and comply with SA’s tax laws.
“Previously, financial emigration with Sarb was sufficient for expatriates to transfer certain assets abroad, but the Reserve Bank no longer recognizes financial emigration as a separate process,” Ndlovu said.
Since March 2021 the responsibility shifted to Sars. All expats must go through the tax authority to establish non-residency status for tax purposes.
According to Ndlovu, even though expats have ceased tax residency in the country, they still need to submit an annual tax return.
Ndlovu said that tax emigration exit does not mean that expats are free from all compliance obligations as they have ongoing requirements for income derived from SA.
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