Thousands of South Africans living in these countries face a major SARS threat

Geopolitical instability in the Middle East is forcing many South African expats to reassess how they cease South African tax residency, as changing circumstances could expose them to future disputes with SARS.

South Africans living and working in the Middle East are currently in a difficult predicament, warned Tax Consulting SA’s legal manager of cross-border taxation, Delano Abdoll, and expatriate tax consultant, Vivian Cox.

Ongoing geopolitical instability has created understandable uncertainty regarding long-term plans, family arrangements, and future residency intentions. Even so, many expats remain committed to continuing their careers abroad.

However, the environment is increasingly influencing how expats approach one of the most important aspects of their tax planning: formally ceasing South African tax residency with the South African Revenue Service (SARS).

Abdoll and Cox said the current uncertainty not only affects whether expatriates wish to cease tax residency, but also the basis upon which they communicate their position to SARS, and whether that basis will remain sustainable if circumstances change.

Since South Africa operates on a residency-based tax system, where SARS regards an individual as a South African tax resident, that person may remain taxable in South Africa on worldwide income and gains.

This is the case regardless of where they live or work. Expatriates seeking to terminate South African tax residency generally rely on one of two broad approaches:

asserting that they have permanently ceased South African tax residency on the basis that they no longer ordinarily reside in South Africa; or
relying on the application of a Double Taxation Agreement (DTA), where they remain technically resident under domestic law but are treated as exclusively tax resident in another country under the relevant treaty.

While the distinction between these approaches has always been significant, it has become increasingly sensitive in the current geopolitical climate, Abdoll and Cox said.

The basis relied upon with SARS now matters more than ever

Many South African expatriates working in the Middle East originally relocated to access international employment opportunities, increase their earning potential, and provide greater financial security for their families.

Recently, many expatriates have indicated that, despite current regional instability, they intend to continue living and working abroad, Abdoll and Cox said.

That is, provided their employer’s operations remain stable, their employment position remains secure, and family life can continue safely and sustainably in the region.

However, many expatriates have also expressed concern that the regional conflict will materially affect their spouse or children, particularly in terms of schooling, safety, or day-to-day family stability.

Should this happen, they may consider sending their families back to South Africa while continuing to work abroad themselves.

“These evolving circumstances create significant complexity when determining the correct basis upon which South African tax residency should be ceased,” Abdoll and Cox said.

An expatriate who approaches SARS on the basis that they have permanently emigrated and no longer ordinarily reside in South Africa may later face difficulties if their family returns to South Africa sooner than anticipated.

They could also face challenges if they themselves return to South Africa within a relatively short period or their Middle East employment becomes unstable.

If circumstances ultimately demonstrate that the relocation abroad was not as permanent as originally represented, this could also leave them in a difficult position, Abdoll and Cox warned.

“Conversely, some expatriates may rely on a DTA-based position on the basis that their stay abroad remains linked primarily to employment, while maintaining the possibility of eventually returning to South Africa.”

“The challenge is that geopolitical instability may rapidly alter a taxpayer’s factual circumstances after SARS has already accepted a particular basis for non-residency.”

The Risk of Relying on the Incorrect Basis

One of the greatest risks expatriates currently face is selecting a basis for ceasing residency that later becomes inconsistent with their conduct or surrounding circumstances, Abdoll and Cox said.

“Ceasing South African tax residency is not merely an administrative election or a strategic preference selected on a SARS form.”

“The basis relied upon must align with the taxpayer’s actual facts, intentions, and long-term circumstances at the relevant time.”

Where SARS later finds that the original basis relied upon was incorrect, or soon became inconsistent with the taxpayer’s conduct, the consequences may extend far beyond a simple compliance dispute. Risks may include:

• SARS withdrawing or challenging the non-residency outcome previously accepted;
• disputes regarding the taxpayer’s effective cessation date;
• retrospective taxation on worldwide income and gains;
• interest and understatement penalties;
• increased scrutiny of offshore assets and structures;
• disputes regarding treaty application; and
• complications involving retirement withdrawals and exchange control treatment.

“This becomes particularly sensitive where expatriates represented to SARS that they had permanently left South Africa, only to subsequently return within a relatively short period due to instability in the Middle East,” they said.

Where taxpayers relied on treaty-based residency positions while maintaining substantial family and economic ties to South Africa, SARS may also later reassess whether the position remained sustainable throughout the period.

Returning to South Africa too soon may create future SARS challenges

One practical difficulty created by geopolitical instability is that many expatriates cannot confidently predict their long-term intentions, Abdoll and Cox explained.

An individual may genuinely intend to stay abroad indefinitely at the time of ceasing South African tax residency. However, war-related instability may later force a return to South Africa far earlier than originally anticipated.

While changing circumstances do not automatically mean the original position was dishonest or invalid, SARS may still scrutinise whether the taxpayer’s conduct remained consistent with the basis originally relied upon.

This is particularly relevant in cases where expatriates return to South Africa shortly after formalising non-residency, or spouses and children permanently relocate back to South Africa.

It is also the case where permanent homes are re-established locally, or employment abroad is terminated sooner than expected.

“In these situations, SARS may seek to reassess whether the taxpayer genuinely ceased ordinary residence when originally claimed, or whether the treaty-based position relied upon remained factually sustainable.”

For South African expatriates currently living in the Middle East, Abdoll and Cox stressed that the current environment requires a careful, strategic approach to tax residency planning.

The objective should not simply be to cease South African tax residency as quickly as possible, but to ensure that the basis relied upon is properly aligned with:

• their genuine intentions at the time;
• the degree of permanence associated with their relocation abroad;
• their family and domestic circumstances;
• their employment structure; and
• the realistic possibility of future return scenarios.

“As SARS continues expanding its focus on cross-border tax compliance and international financial visibility, ensuring that the correct basis is relied upon from the outset has become more important than ever,” Abdoll and Cox added.