South Africans who have left the country are being forced to answer to SARS

As the taxman intensifies its scrutiny of non-residency tax claims, South Africans working abroad may have to provide additional evidence to prove the period for which they qualified for tax treaty relief.

Many South Africans who work abroad rely on a Tax Residence Certificate (TRC) to support a non-residency position under a Double Tax Agreement (DTA).

However, according to Tax Consulting South Africa, some expats are now discovering that the certificate does not always cover the earliest period of foreign employment for which tax treaty relief was claimed.

This issue arises because, in some jurisdictions, a taxpayer’s first TRC does not necessarily correspond with certain key dates.

This could be the day they departed South Africa, commenced employment abroad, or the date from which they contend that exclusive treaty residence arose.

The consequence is that the taxpayer may face questions from the South African Revenue Service (SARS) and must explain and defend an initial period of foreign employment for which a TRC has not yet been issued.

This may require providing SARS with additional supporting evidence to substantiate their treaty residence position.

Expats may also need to demonstrate that foreign employment income during that initial period should remain non-taxable in South Africa.

As SARS continues to increase its scrutiny of DTA-based non-residency applications, this timing mismatch may become one of the next significant battlegrounds in international tax residency disputes.

Tax Consulting South Africa’s Legal Manager of Cross-Border Taxation, Delano Abdoll, said they are increasingly seeing practical challenges arising from this.

One challenge concerns the legal date on which a taxpayer is regarded as exclusively resident in the other Contracting State under the applicable DTA.

This date does not always align with the period covered by the first Tax Residence Certificate issued by the foreign revenue authority.

“The issue is therefore often not whether the taxpayer ultimately qualifies for treaty relief, but how they evidence the earliest period during which that relief is claimed,” Abdoll said.

When the dates do not align

To illustrate how difficult this could be to navigate, Tax Consulting used an example of a taxpayer who permanently relocates from South Africa to Oman during September.

Upon arrival, they begin long-term employment, establish a permanent home, and begin building their personal and economic lives in Oman.

From a treaty perspective, and assuming the treaty tie-breaker tests are satisfied, they may contend that exclusive residence in Oman arose from that point.

However, the Omani tax authority may issue a TRC only for a later administrative period, depending on its domestic processes and the timing of its tax year. The taxpayer is therefore left with a gap.

While they may ultimately obtain a valid TRC, it may not extend back to the precise date from which they contend that exclusive treaty residence arose under the applicable DTA.

Importantly, Tax Consulting stressed that this issue should not be confused with the legal test for treaty residence.

Whether a taxpayer qualifies for exclusive residence under a DTA remains determined by the relevant treaty provisions and the taxpayer’s underlying facts and circumstances.

Rather, the challenge is evidentiary. SARS may accept that the taxpayer ultimately became a treaty resident in the other jurisdiction, but still requires evidence establishing precisely when that position first arose.

In some cases, the administrative practices of the foreign revenue authority do not produce a TRC that aligns with the taxpayer’s relocation date.

When this happens, SARS may seek further explanation and supporting evidence to establish how treaty residence is said to have arisen during that initial period abroad.

As SARS has previously indicated, the relevant date is not simply the date on which the taxpayer left South Africa. Instead, it is the date upon which the requirements for exclusive residence under the applicable DTA are satisfied.

This issue shows an often-overlooked aspect of DTA planning: documentary requirements can differ significantly between jurisdictions.

Not every country’s tax administration operates in the same way. Some jurisdictions issue TRCs based on calendar years. Others align them to a different fiscal year.

Some require a minimum period of residence before issuing a certificate, while others only issue certificates retrospectively once certain administrative requirements have been satisfied.

As a result, two taxpayers who leave South Africa on exactly the same day may face very different evidentiary challenges depending entirely on the country to which they relocate.

While the legal analysis under the DTA may be similar, the documentary evidence supporting that analysis may not be.

The risk for South Africans abroad

When the revenue service questions the effective date of treaty residence, taxpayers may face practical consequences.

They may be required to justify why foreign employment income earned during that initial period should qualify for treaty relief.

As such, the issue becomes less about whether the taxpayer eventually obtains a TRC and more about whether sufficient evidence exists to support the period before that certificate takes effect.

In many cases, this may require a broader evidentiary package, including employment contracts, immigration documentation, accommodation records, and other contemporaneous evidence.

The point of these documents is to show that the taxpayer had already established treaty residence under the relevant DTA.

However, recent SARS verification requests indicate an increasing focus on issues other than whether a taxpayer holds a valid TRC.

The taxman is now also looking at whether the effective date of treaty residence claimed can be substantiated by contemporaneous evidence.

As verification becomes more detailed, Tax Consulting said taxpayers should expect greater scrutiny of any period that falls outside the dates reflected on their first TRC.

The increasing focus on effective dates, supporting documentation, and treaty analysis suggests that DTA applications are becoming increasingly evidence-driven.

Taxpayers should therefore avoid assuming that obtaining a TRC automatically resolves the entire treaty residence analysis.

Equally important is understanding whether the period covered by that certificate aligns with the date from which treaty relief is claimed.

Where it does not align, the expat must ensure that they have appropriate evidence to support the intervening period.