South Africa’s tax base continues to evolve in striking ways. Recent South African Revenue Service (SARS) figures show a growing trend. The number of individuals registered for tax increased from 25.9 million in 2023 to 27.1 million in 2024. Yet, only 7.6 million of these individuals were expected to file a return.
At the same time, more than 38,000 individuals formally migrated for tax purposes between 2017 and 2023. The number of taxpayers reporting taxable income of zero or less climbed by nearly 576% over the past decade.
These numbers highlight two parallel realities. On one hand, more South Africans are registering as taxpayers. On the other hand, large numbers are reporting no taxable income at all. This often happens when they work abroad, earn foreign income or remain in a grey zone between jurisdictions.
It is in this grey zone that questions of breaking down dual residency and the use of tiebreaker tests become critical.
Why dual residency matters
South Africa’s residency-based tax system taxes residents on worldwide income. Non-residents, however, are taxed only on income sourced within South Africa.
Problems emerge when an individual or company is treated as a resident in more than one country under each jurisdiction’s domestic law. This overlap creates the risk of double taxation on the same income.
Breaking down dual residency reveals that it is more common than many people realise. It does not only affects expatriates who have permanently emigrated. Dual residency may involve professionals who spend eight months abroad but return to South Africa yearly. It can also affect South Africans who own businesses incorporated offshore.
Understanding tax residency
For individuals, tax residency in South Africa depends on being ‘ordinarily resident’ or meeting the ‘physical presence’ test. SARS assesses ordinary residence case by case, focusing on where a person’s true home and life interests lie.
If ordinary residence does not apply, SARS applies the physical presence test. Generally, an individual becomes a non-resident if they remain outside South Africa for 330 continuous days.
Breaking residency usually triggers an exit tax. This includes a deemed disposal of worldwide assets for capital gains tax purposes. An alternative approach is to present SARS with a tax residency certificate from another country, supported by full documentation. Here, breaking down dual residency becomes essential for individuals who have left South Africa but still maintain ties through property, family or business interests.
For companies, residency hinges on where they are incorporated or where their ‘place of effective management’ lies. Multinationals often face disputes when these criteria differ across jurisdictions. This is another area where breaking down dual residency offers crucial clarity.
The role of double taxation agreements and tiebreakers
Double Taxation Agreements (DTAs) exist to prevent the same income from being taxed twice. Most DTAs follow the OECD Model Tax Convention and contain tiebreaker rules assigning residency to one country.
These treaties consider factors such as where an individual maintains a permanent home and where they habitually reside. They also assess where personal and economic ties are strongest. For companies, the decisive test usually concerns the place of effective management.
If residency remains unresolved through initial tests, a tiebreaker process applies. This process follows a Mutual Agreement Procedure between the two tax authorities. Taxpayers must obtain residency certificates from both jurisdictions to begin this procedure. Professional advice is strongly recommended.
Relying on assumptions is risky. Many South Africans abroad file nil returns to SARS while declaring income elsewhere. They assume this avoids double taxation. However, without consulting the DTA or confirming the correct residency status, they risk penalties or back taxes. Here again, breaking down dual residency ensures that individuals understand their true tax obligations and avoid financial exposure.
Navigating tax residency abroad
For South Africans living or working overseas, understanding tax residency is vital to avoid 
unnecessary tax exposure. Each case is fact-specific, and DTAs can provide relief, but only when applied correctly.
We are well-positioned to assist clients in navigating the complexities of international tax planning. We help with residency determination, places of effective management and managing income earned abroad.
In an increasingly globalised world, breaking down dual residency is not just a legal issue. It is a strategic financial necessity for South Africans who live, work or invest across borders.
Lance Lawson | Consultant | Business Development | Sovereign Trust (SA) | mail me |
