Upon relinquishing tax residency in South Africa, we often receive enquiries regarding subsequent steps and obligations.
Michelle Tickner, a General Tax Practitioner (SA), and Annalise Heydenrych, a Cross Border Tax Consultant in our Consulting Team, present some of the common concerns and associated guidance pertaining to the cessation of tax residency.
Following the formal confirmation of non-residency and the receipt of supporting documentation, individuals seek clarity on necessary actions. The primary inquiry pertains to the retention of the South African Income Tax Number and its relevance in the context of the altered tax status.
A comprehensive understanding of South Africa’s residence-based tax system is fundamental, distinguishing between tax obligations for residents and non-residents. The tax liability for non-residents is contingent upon their remaining financial and economic affiliations with South Africa.
It is then also essential to comprehend the implications of the prevailing exchange control rules and regulations set forth by the South African Reserve Bank (SARB). These regulations extend to individuals who have renounced their tax residency, particularly concerning the movement of funds to foreign jurisdictions, governed by the Approved International Transfer (AIT) procedure.
South African Retirement Annuity (RA):
Post the amendments effective from March 1, 2021, considerations regarding South African retirement annuities have gained attention. Specifically, inquiries involve demonstrating a requisite period of residing, working, and paying taxes in another country before complete access to the retirement savings within South Africa is permissible.
Administrative procedures for processing such withdrawals encompass the necessity of directives from the South African Revenue Service (SARS) to affirm non-resident status and determine appropriate tax deductions.
Taxation of Rental Income from Owned Property:
Individuals retaining ownership of properties in South Africa that generate rental income seek clarification on tax implications. Rental income, being sourced within South Africa, is subjected to taxation, necessitating its declaration in the annual income tax return.
Moreover, considerations extend to potential implications of double taxation agreements and their applicability in mitigating tax liabilities in the individual’s new tax-resident country.
Taxation Upon Sale of South African Immovable Property:
Individuals selling immovable property in South Africa after relinquishing tax residency inquire about the applicable withholding tax mechanisms.
As sellers, they aim to comprehend the withholding tax rates on proceeds from such sales, emphasizing the importance of conveying their non-resident status to the concerned parties involved in the transaction. Withholding tax liabilities can be minimized by applying for a tax directive from the SARS non-residency department at the time of the disposal of the immovable property.
Fund Transfer Procedures:
Comprehensive guidelines are sought regarding the transfer of funds out of South Africa by non-residents. As access to the annual single discretionary allowance is no longer granted, the process of Approval of International Transfer (AIT) becomes pivotal. Individuals are advised to maintain their income tax reference numbers and adhere to annual tax return submissions until complete externalization of remaining capital from South Africa to the foreign jurisdiction.
Receiving Trust Distributions as a Non-Resident Beneficiary:
Beneficiaries of South African trusts, now residing outside the country, express concerns regarding the taxation of trust distributions. A nuanced understanding of the tax implications surrounding such distributions, including the tax consequences in the new country of residence, is essential. Additionally, the necessity of seeking SARB approval for fund transfers via AIT is emphasized.
Inheritance and Life Policy Proceeds:
Prospective inheritors of South African estates or beneficiaries of life policies inquire about the procedures for transferring funds abroad. Various factors, including the presence of other assets in South Africa and the amount of inheritance or life policy proceeds, dictate the simplicity or complexity of the transfer process. The importance of maintaining tax compliance and its role in facilitating fund transfers is highlighted.
Maintenance of a South African Will:
Individuals residing outside South Africa contemplate the relevance and necessity of maintaining a South African will. Particularly, the need for a South African will in cases where assets, particularly immovable properties, remain within the jurisdiction, is discussed.
Utilization of Foreign Remuneration Exemption:
Inquiries surround the applicability of the foreign remuneration exemption s10(1)(O)(ii), specifically questioning whether it can be utilized by non-residents. It should be noted that this exemption is exclusively available to South African tax residents.
Retention of South African Bank Account:
Concerns regarding the retention of a South African bank account while residing as a non-resident are addressed. The need to update the bank regarding tax residency status is highlighted, ensuring appropriate reporting and tax treatment of interest earned in the account.
Sentinel International understands that every clients situation is unique, and so should you have any further questions regarding your specific situation, please do not hesitate to contact us.
Authors: Michelle Tickner and Annalise Heydenrych