SARS puts a spanner in the works for South Africans who want to leave the country

SARS compliance issues, such as unpaid tax, penalties and unfiled returns, could delay or complicate non-resident tax applications for South Africans living abroad.

This is according to Tax Consulting SA’s Tax Compliance Specialists Alex Mahundla and Chrispos Seete, who said these issues could put a “spanner in the works” for those who want to end their South African tax residency.

Whether applying through the cessation of tax residency process or seeking relief under a Double Taxation Agreement (DTA), taxpayers often focus on proving that they have established tax residency in another country.

Recent experience indicates that the South African Revenue Service (SARS) is focusing more on a taxpayer’s overall compliance status when considering applications for non-resident tax status.

Any non-compliance may result in an application being delayed, subjected to additional scrutiny or, in some cases, rejected.

This can happen even where the taxpayer has a strong case for ceasing their tax residency, Mahundla and Seete warned.

Historically, the main consideration in a tax residency application was whether the taxpayer could demonstrate that they had ceased to be ordinarily resident in South Africa or qualified for treaty relief under a DTA.

While these factors remain fundamental, SARS is adopting a broader approach by reviewing the taxpayer’s overall compliance profile.

Taxpayers who otherwise meet the requirements for recognition as non-residents are now experiencing difficulties because of unresolved compliance issues on their SARS profiles.

These compliance concerns are a barrier to the application’s conclusion. Issues that may attract SARS’ attention include:

• Outstanding tax liabilities
• Administrative penalties
• Unfiled tax returns
• Returns selected for verification or audit
• Outstanding SARS correspondence
• Incomplete supporting documentation
• Discrepancies in taxpayer registration details
• Outstanding compliance obligations relating to other tax types

Why SARS is clamping down on tax status changes

In a matter handled by the Tax Consulting SA team, the taxpayer had relocated abroad and had a factual basis for being recognised as a non-resident for South African tax purposes under a DTA.

The application was supported by the documentation and evidence demonstrating foreign tax residency. Despite this, SARS raised concerns because the taxpayer’s profile indicated compliance-related issues.

While the taxpayer’s residency position was not necessarily the point of contention, the compliance concerns directly affected SARS’ consideration of the application.

Fortunately, after the matters were addressed and the application process managed, SARS confirmed the taxpayer’s non-resident status.

Mahundla and Seete said this case is a reminder that meeting the legal requirements for non-residency is no longer sufficient. SARS expects taxpayers to be compliant before it will approve a change to their tax profile.

Recognising a taxpayer as a non-resident has tax implications for the fiscus. A successful non-resident application impacts:

• Ongoing South African filing obligations
• The taxation of foreign income
• Access to Double Taxation Agreement relief
• Retirement fund and pension withdrawals
• Offshore investment planning
• Capital Gains Tax consequences associated with ceasing tax residency

Given these implications, Mahundla and Seete said SARS is placing greater emphasis on ensuring that taxpayers’ affairs are compliant before granting or confirming non-resident status.

They recommended that taxpayers considering a non-resident tax application should review their SARS profile to identify and address any compliance issues.