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Take note of flagged tax returns even if you are a non-resident

Dec 1, 2023

By Amanda Visser

There has been a noticeable increase in the number of South Africans living abroad who are being flagged for not submitting tax returns. The South African Revenue Service (SARS) has sent these taxpayers letters to inform them of outstanding returns for multiple years. “It appears that SARS has obtained third-party information on the taxpayers through the automatic exchange of information based on common reporting standards”, says Jonty Leon, managing partner at the Leap Group. He says failure to respond to these letters may result in the levying of penalties. Leon advises South Africans abroad to review their SARS profiles. “The crucial first step is to assess if they meet the South African residence requirements.”

On its website, SARS clarifies that if the individual is neither ordinarily resident nor meets the requirements of the physical presence test, that individual will be regarded as a non-resident for tax purposes. Such individuals will only be subject to tax on income that has its source in South Africa.

“To be deemed an exclusive tax resident of another country based on a double tax agreement (DTA), you must pass the ‘tiebreaker’ test within the DTA when applied to your factual situation”, adds Leon.

Worldwide income

Submitting a tax return without formalising non-residence with SARS will result in the return being assessed based on the assumption that the taxpayer is a resident subject to tax on worldwide income.

“Even if an individual is certain of their non-resident status, failure to formally cease tax residence before submitting flagged returns could result in SARS assuming that individual is a tax resident,” remarks Leon.

Reinert van Rensburg, tax attorney at the Leap Group, advises people residing abroad to log into their eFiling profiles to verify their tax residence status. “Ensure that all returns, especially those flagged by SARS, are submitted accurately, considering the individual’s tax residence status.” He warns that ignoring or delaying action might lead to unwanted tax liabilities and penalties.

The tests

SARS explains that the determination of whether an individual ceases to be a tax resident in South Africa is based on the way such an individual has been a tax resident in South Africa.

It is a factual enquiry to determine if a person is no longer ordinarily resident in South Africa, and it is supported by various objective factors. A person will cease to be an ordinarily tax resident from the day such person ceases their residence.

SARS sets out, amongst others, the following factors that should be considered to determine whether a taxpayer has ceased to be a tax resident of South Africa:

  • The type of visa on which you have gone to the foreign country.
  • A certificate of tax residence from the foreign revenue authority or a letter from the authority indicating that you are regarded as a tax resident in that country.
  • Details of any property you may still have available in South Africa. Indicate for which purpose such property is being used.
  • Details of any business interest, either through investment or employment, that you may still have in South Africa.
  • Details of any return visits to South Africa, their frequency, and the reason for undertaking such visits.

An individual who is a tax resident by virtue of the physical presence test ceases to be a resident when that person is physically outside the country for a continuous period of at least 330 full days. The individual will be deemed to have ceased to be a resident from the day such person left South Africa. Leon notes that the onus remains on the taxpayer to ensure compliance.

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