Are you considering a move abroad and need to cease your tax residency in South Africa? Navigating the process can seem daunting, but fear not! This comprehensive guide will provide you with clear, step-by-step instructions to help you through the process smoothly.
Step 1: Determine Your Residency Status
First, establish whether you are considered a tax resident of South Africa. This involves analyzing the physical presence test and the ordinarily resident test as stipulated in Section 1 of the Income Tax Act, 1962. If you are deemed a tax resident, you are subject to South African tax on your worldwide income.
Step 2: Physical Presence Test
Review the physical presence test, which considers the number of days you have spent in South Africa over the last 6 years. Specifically, you must not be present in South Africa for more than 91 days in the current and each of the preceding five tax years, and not more than 915 days in total over the previous five tax years.
Step 3: Ordinary Resident Test
Evaluate the ordinarily resident test, which determines whether South Africa is your usual or principal residence. Factors include your intentions, frequency of visits, and the overall nature of your presence in the country.
Step 4: Cease to be Ordinarily Resident
If you intend to cease being ordinarily resident, you must make a clear and decisive break from South Africa. This can involve selling your home, relocating your family, and terminating employment in South Africa. The intention to leave permanently must be evident.
Step 5: Notify SARS
Notify the South African Revenue Service (SARS) of your intention to cease tax residency. Complete the relevant sections of the IT77 registration form and submit it to SARS. Ensure all your tax returns are up to date and that you have settled any outstanding tax liabilities.
Step 6: Obtain SARS Confirmation
Upon reviewing your submission, SARS will issue a confirmation that you are no longer considered a tax resident of South Africa. Retain this confirmation for your records as it serves as proof of your change in tax residency status.
Step 7: Review Double Taxation Agreements (DTAs)
Examine any Double Taxation Agreements (DTAs) between South Africa and your new country of residence to understand the implications on your tax obligations. DTAs are designed to prevent individuals from being taxed twice on the same income.
Step 8: Evaluate Capital Gains Tax (CGT) Implications
Upon ceasing tax residency, you may be subject to Capital Gains Tax (CGT) on your worldwide assets. Section 9H of the Income Tax Act requires you to declare a deemed disposal of your assets. Evaluate the CGT consequences and ensure compliance with reporting requirements.
Legal References
- Income Tax Act, 1962
- Section 1 of the Income Tax Act, 1962
- Section 9H of the Income Tax Act, 1962
Useful Links
