It has immediately develop into harder for South Africans dwelling and working abroad for months on finish to persuade the South African Revenue Service (Sars) that they’re non-residents for functions of tax, and that the earnings they earn outdoors of SA shouldn’t be taxed right here.
While it is just honest that people shouldn’t pay tax in SA if they aren’t right here and aren’t utilizing native infrastructure and companies provided by authorities, they should show that that is the case.
“Sars has started to make good on its promise in the 2020 Budget Review by enhancing their verification and audit processes to accurately review the compliance and tax status of South Africans living abroad,” says Nikolas Skafidas, tax diagnostic specialist at Tax Consulting SA.
Tax Consultancy SA – which says it’s one the six greatest tax practitioners in SA when measured by the variety of tax returns submitted to Sars – has seen a particular improve within the variety of audits on expatriates.
Onus
“We are privy to a large number of Sars verification requests, allowing us to gauge the extent of a Sars audit and Sars’s ability to investigate and verify a taxpayer. We have seen a recent rise in these expatriate audits from Sars, and many different iterations thereof,” he says.
The onus is on the taxpayer to show that they’re a non-resident, with Sars asking for supporting documentation.
“The relevant factors to be considered will differ in each case. Generally, the objective nature of this determination means that Sars requires documentation which substantiates that the taxpayer is leaving or has left SA on a permanent basis,” says Skafidas.
“This may include exit and entry stamps, a copy of the appropriate visa, a foreign tax residency certificate, explanations on return visits and remaining family members in SA, among others.”
Audit
It appears to be like like people working abroad ought to anticipate an audit given Sars’s powerful new strategy.
It has been getting stricter yearly, and began issuing letters of affirmation of taxpayers’ non-residence statuses on the finish of 2021. These letters can solely be obtained when the taxpayer has adopted the right formal process to stop their tax residency.
Read: Hidden tooth in new letters of non-residency from Sars
In the 2022 tax 12 months, Sars deactivated the non-resident ‘tick-box’ on tax returns, which successfully meant that taxpayers first needed to apply for non-resident standing earlier than they might file their tax returns.
“Audits follow the principle that the burden of proof rests upon the taxpayer,” says Skafidas.
“The considerably extra intense Sars verification processes, seen at completely different levels of the tax non-residency declaration course of, present that this precept is unquestionably being adopted, and sharply at that.
“Sars typically screens compliance in two methods: verifications and audits. In every case, the knowledge disclosed on one’s returns is in comparison with their monetary and accounting data, in addition to different supporting paperwork.
“Verification of whether or not the taxpayer qualifies to be a tax non-resident is the same old first step when partaking with Sars and is decided with reference to the documentation and accompanying disclosures offered in assist of the taxpayer’s everlasting emigration.
“In distinction to a verification, a Sars audit appears to be like extra carefully on the taxpayer’s monetary and accounting data and/or supporting documentation to confirm if the taxpayer’s tax place has been precisely said to Sars.
“This is usually a much more invasive process than a verification by Sars,” says Skafidas.
An audit, in relation to 1’s non-resident standing, could be a glance into whether or not the taxpayer complied with the necessities of the relevant tax laws after they made the declaration with regards to their residency, with enough documentary and different goal assist for the non-resident place.
This must be understood to be an investigation by Sars in respect of suspected non-compliance.
Two residency exams
Sars typically applies two exams to find out whether or not a taxpayer is resident in SA, particularly the “ordinarily resident” and the “physical presence” take a look at.
The ordinarily resident take a look at is at all times the primary take a look at. It is an goal evaluation of the taxpayer’s factual circumstances for Sars to verify that they’ve a everlasting intention to reside abroad.
The surrounding components should level in direction of a bona fide intention for taxpayers to dwell outdoors of SA on a everlasting foundation.
When taxpayers intend to return to SA completely sooner or later – say after working and staying abroad for a couple of years – they might not qualify to develop into non-resident.
They ought to take into account various aid, similar to that relevant by way of a double tax treaty (which isn’t triggered mechanically) or tax resident aid mechanisms by way of the Income Tax Act.
The bodily presence take a look at applies the place a non-resident taxpayer was not, at any time throughout a tax 12 months, ordinarily resident in SA. However, they are going to be as soon as once more develop into a South African tax resident in the event that they spend greater than 91 days within the nation within the present tax 12 months in addition to every of the 5 earlier tax years, and greater than 915 days within the first 5 tax years total.
“If these three requirements are met, then they will become a resident in the sixth tax year,” says Skafidas.
He provides that it is very important notice that Sars’s oversight on compliance on this space has elevated drastically over time and the ‘scotch-tape’ and ‘band-aid’ approaches that will beforehand have been adopted by expatriates are typically not acceptable.
Confirmation letter
Tax Consulting SA says in a current article that the method to stop tax residency was by no means a easy job, and has develop into more and more extra onerous to finalise with the intention to get hold of the required proof of 1’s non-residency standing.
“With the above being said, it has become ever clearer that South Africans abroad need to ensure that their non-residency is correctly reflected with Sars and that they obtain official confirmation,” says Skafidas.
“The non-resident confirmation letter issued by Sars provides the taxpayer with security in the midst of a marked increase in verifications and audits,” he provides.
“Likewise, the letter serves as conclusive affirmation of an individual’s non-tax residency and it additionally specifies the efficient date of their tax non-residency.
“The diligent approach will be to obtain this letter in order to re-verify your non-resident status with Sars. This document would also serve as a non-resident taxpayer’s first line of defence after ceasing their South African residency, in the event of a later Sars investigation into their residency.”
The non-resident letter is a once-off matter. This doc, as soon as issued by Sars, supplies ultimate affirmation that the taxpayer is taken into account to be non-resident.
Read: Tax emigration: Definitions of resident and non-resident are ‘misaligned’