Vivian Cox | Expatriate Tax Consultant | Tax Consulting SA | mail me |
South Africans planning to relocate abroad or formalise their non-resident taxpayer status face a significantly changed regulatory environment. Over the past few years, the process of ceasing tax residency has shifted from a largely bank-driven exercise to a compliance-focused process under the South African Revenue Service (SARS).
This transition has fundamentally changed how taxpayers prove they have ceased South African tax residency. More importantly, individuals who followed the old financial emigration process should not assume that their historical approvals automatically satisfy today’s SARS requirements. These developments mark a new era of tax residency, where formal tax compliance and documentary evidence play a central role.
The old regime – a banking-centric framework
Before March 2021, South African banks largely managed the process of ceasing tax residency under the exchange control system.
The process began with the completion of the MP336(b) form, which taxpayers submitted through an authorised dealer. The taxpayer would then apply to SARS for an Emigration Tax Clearance Certificate (ETCC). This certificate confirmed that their tax affairs were in order before the bank sought approval from the South African Reserve Bank (SARB). The approval enabled the transfer of funds offshore in accordance with South African exchange control requirements.
A key component of the process was the application of “exit tax” under Section 9H of the Income Tax Act. Individuals who ceased tax residency were deemed to have disposed of their worldwide assets immediately before becoming non-residents. This could trigger capital gains tax, which they had to declare on their tax returns.
Once SARS issued the tax clearance, the individual’s South African bank account was converted into a Blocked Asset Account. Following SARB approval, the authorities regarded financial emigration as complete.
The new regime – a SARS-led compliance process
Taxpayers must still follow a formal process with the South African government. However, the sequence of approvals has changed. The current process centres on SARS rather than the process initiated through the SARB before 1 March 2021.
Under the current process, taxpayers update their residency status through the RAV01 form on SARS eFiling. This typically triggers a verification process. During this process, SARS may request extensive supporting documentation to demonstrate that the individual has genuinely ceased South African tax residency.
Importantly, the exit tax under Section 9H still applies. Although the administrative process has changed, the tax consequences of ceasing residency remain unchanged. Taxpayers must still declare these consequences correctly.
If SARS is satisfied with the application and supporting evidence, it issues a Confirmation of Non-Residency Letter. This document has become the primary means of demonstrating that an individual is no longer a South African tax resident.
These changes illustrate a new era of tax residency, in which taxpayers must establish their status through SARS’s compliance processes rather than relying solely on the historical financial emigration procedure.
What about people who followed the old process?
One of the biggest misconceptions is that individuals who financially emigrated before March 2021 automatically meet today’s SARS requirements.
Although the old financial emigration process may have concluded successfully under the exchange control system, it did not result in a SARS Confirmation of Non-Residency Letter. That document did not exist at the time.
This letter has become increasingly relevant as taxpayers seek to transfer funds offshore, withdraw South African retirement interests after satisfying the required non-residency period, or prove their tax residency status to financial institutions and foreign tax authorities.
In many cases, taxpayers who completed financial emigration under the old regime may need to formally regularise their tax residency status with SARS under the current process. This may be necessary to obtain official confirmation of non-residency. However, taxpayers should assess each case individually, taking its specific facts and supporting documentation into account.
Why the new approach matters
The shift to a SARS-led process reflects a broader trend towards enhanced compliance measures, international transparency and greater information sharing between tax authorities.
Physically leaving South Africa or transferring assets offshore no longer establishes non-resident status on its own. Without formal recognition from SARS that they have ceased tax residency, individuals may continue to qualify as South African tax residents. Consequently, they may remain liable for tax on their worldwide income.
This situation can create unintended double taxation, particularly when individuals have also become tax residents elsewhere. Although Double Taxation Agreements may provide relief, taxpayers can encounter complications if they rely on treaty provisions without properly regularising their South African tax residency. This approach can also increase the likelihood of disputes with SARS.
Failure to declare exit tax correctly may also result in penalties, interest and additional verification by SARS. As compliance standards continue to evolve, taxpayers should ensure that their historical and current tax positions accurately reflect their residency status.
For expatriates, internationally mobile professionals and high-net-worth individuals, maintaining properly documented tax residency status has never been more important.
A new benchmark in tax residency
South Africa’s transition away from the SARB-focused regime represents more than a procedural change. It marks a shift from an exchange control process administered by banks to a formal tax compliance process administered by SARS.
For taxpayers who ceased residency under the previous regime, the introduction of the Confirmation of Non-Residency Letter raises an important question: does your historical financial emigration still provide the evidence you need today? In many cases, the answer may be no.
Ultimately, taxpayers who require formal recognition of their non-resident status must follow the current SARS process. Obtaining the appropriate SARS confirmation helps protect against future disputes, facilitates international fund transfers where required, and provides greater certainty in an increasingly regulated global tax environment.
This is a new era of tax residency, where historical approvals may no longer provide sufficient evidence for today’s compliance requirements. Taxpayers must understand the distinction between having completed financial emigration and obtaining formal confirmation of their current tax residency status.
Do not rely on relocation or historical financial emigration alone. Where formal proof of non-resident tax status is required today, SARS confirmation has become the benchmark.
