- SARS' ability to detect taxpayers who historically "flew under its radar" has increased, warns a tax expert.
- A new, more stringent regime to determine tax residency status will be implemented from 1 March 2021.
- Tax residency of South Africa is not determined solely on the amount of time spent in the country.
The time for hiding their heads in the sand about tax is over for SA expatriates, says Jonty Leon, legal manager at Tax Consulting SA.
South Africans living or working abroad can no longer "avoid" the long arm of the SA Revenue Service. Stricter legislation to back its efforts to collect taxes and an emerging system of global financial data sharing increases SARS' ability to detect taxpayers who historically "flew under its radar".
"Under pressure to meet its revenue quotas, SARS has started auditing the country's non-compliant expatriates in earnest. We have been warning expatriates that this was coming and now that it's here," says Leon.
"The safest route to remove ambiguity on tax residency status is to follow the formal financial emigration process. This process is being changed and a new more stringent regime will be implemented from 1 March 2021."
He advises South Africans intending to relocate to another country to follow the formal exit procedures and, most importantly, ensure their tax affairs are in order beforehand. He also advises that those who have already left permanently, should ensure they have done so in a compliant manner, and have had themselves noted as non-resident for tax purposes.
Whether a South African must declare their worldwide income and pay tax on it to SARS is determined by their tax residency status, not their physical location or period outside the country.
"Tax residency of South Africa is not determined solely on the amount of time spent in the country. This is a far more complex issue which must be technically dealt with in terms of the law," explains Leon.
"This may come as a shock to those who believe that, once they set foot on foreign soil, they are free from any further tax obligation to South Africa. More so for those who left the country without settling their tax debt, even if they have been gone for decades."
Changes to the expatriate tax laws came into effect on 1 March 2020, soon after SARS launched its dedicated Foreign Employment Unit, which is focused on South Africans working abroad.
Furthermore, it was announced that the current financial emigration law, which in the past had been successful in confirming one's non-resident status with SARS and the SA Revenue Service (SARB), would be amended.
"The change will inherently make it more difficult to cease tax residency and with a new and, as yet, undisclosed replacement process on the horizon, there has been a massive influx of applications to beat the [1 March 2021] deadline," says Leon.
Furthermore, the term "wilfully" was removed from the Tax Administration Act in relation to dealing with non-compliance. This gives SARS greater leverage to prosecute anyone claiming negligence when failing to meet their tax obligations.
"This is in line with the reasoning for the change in the expatriate tax legislation previously, where the rife tax non-compliance of South Africans abroad was noted during Parliamentary sessions in August 2017," says Leon.
SARS attack strategy
SARS has begun a two-pronged attack strategy, according to Leon. Firstly, the tax agency calls audits on individual expatriates, wanting them to prove they are non-residents and justify their intentions. Some audits call for proof that the taxpayer had obtained an Emigration Tax Clearance Certificate when leaving South Africa.
Secondly, SARS calls audits on offshore income revealed through the common reporting standard (CRS). According to Leon, this comes as no surprise, as SARS is targeting those who have historically been able to "hide" assets and funds. This "hiding" of funds will no longer be possible due to the exchange of information between jurisdictions.
Leon says South African expatriates and those wishing to emigrate still have several options available to them.
For one, they can urgently apply for financial emigration until March 2021 as National Treasury confirmed that applications submitted prior to that date will be processed under current legislation.
They can also take advantage of any double tax agreement between their chosen country and South Africa. The tax implications of such agreements vary between jurisdictions and these agreements do not apply automatically to the taxpayer.
If an expatriate is not tax compliant, he or she can approach SARS under the Voluntary Disclosure Programme to pay their back taxes along with interest and penalties but without prosecution. Specific requirements must be met.
"SARS has the advantage now, so waiting to see what happens is a course of action I do not recommend," cautions Leon.
* Compiled by Carin Smith