SARS is increasing the pressure on South Africans living abroad

SARS is increasing the pressure on South Africans living abroad

Legislation, Tax

With SARS aggressively targeting the tax affairs of wealthy South Africans it is not a surprise that South Africans living abroad have now been put in the spotlight. SARS is of the opinion that many of these people are likely to be non-compliant for the following reasons:

  • They have not ceased their tax residency in South Africa
  • They have not filed tax returns in South Africa
  • They have not declared their foreign income (as required by a South African taxpayer).

SARS has legislation in its arsenal that can punish these taxpayers if they do not engage and comply with SARS queries and directives. Taxpayers can be punished for non-compliance in the following areas:

  • Non-co-operation with a SARS official, submitting false or incomplete documents
  • Neglecting to notify SARS of the change of personal details
  • Retaining records as required under the Tax Act, etc.

Whilst this is not a complete list, SARS appears to be willing to go the prosecution route to punish taxpayers for non-compliance, with such punishment including a fine or imprisonment of up to two years.

So, in a nutshell what is the problem facing these taxpayers living abroad?

Solely being abroad does not exempt the person from declaring their worldwide income and assets to SARS. Unless they have formally ceased their tax residency, they will still be seen as a tax resident and will need to declare worldwide income and assets. The onus remains with the taxpayer to declare and formalize their tax residency with SARS to avoid being prosecuted due to a non-compliant profile.

SARS has not let grass grow under their feet and have sent out a deluge of e-mails to taxpayers who left South Africa to live overseas. It would be interesting to know what the statistics are in terms of the number of responses received. As tax practitioners a lot of these e-mails have come to us and then been forwarded on to our clients. We have seen a poor response in terms of interest in compliance from our clients to date though.

It would have come as quite a shock to many of these taxpayers that SARS has ‘dredged’ up their tax affairs again, particularly for those South Africans who have been gone for more than 10 years. Many of these people have stated that they have foreign citizenship and have no obligation to SARS, not realizing that citizenship is a home affairs status and tax residency a SARS status. The two are not aligned and do not depend on one another.  If that is a shock to the person, what is the advisable course of action to ensure a clean slate with SARS?

The best option for South African expatriates is to cease their tax residency with SARS formally, either through financial emigration or using a double taxation treaty when it is applicable. Once tax residency has ceased the taxpayer will be seen as a non-resident for tax purposes and would only be required to declare earnings from a South African source going forward.

The taxpayer must be fully tax compliant for SARS to change their tax residency status to ‘non-resident’.

The only other option to ensure compliance with SARS is to use the foreign income exemption. The taxpayer would need to meet the applicable qualifying requirements though to ensure that the R 1.25 exemption was applicable. Ceasing tax residency would be better as it takes the full foreign-earned income out of the equation and that’s why it’s important that the taxpayer is compliant and has followed the correct procedures.

To those sceptics who believe that SARS will not tackle them on foreign soil, please think again. SARS has been very clear that being non-compliant with them leaves the taxpayer vulnerable to the risk of being criminally prosecuted. SARS is not afraid of using social media as the medium to serve a summons. If it can be proved that the taxpayer has viewed the summons SARS will push for a judgement finding the taxpayer guilty of non-compliance. With the new harsher penalties that SARS has recently legislated, it could prove quite a shock should the taxpayer be arrested at a border entry point when returning for a holiday or a family event. The taxpayer would also need to carefully consider their international travel plans as a non-compliance conviction could get them arrested in a country having an extradition treaty with South Africa.

We urge taxpayers who may fall into this target category to take these threats seriously and to take immediate action to regularize their tax affairs. It is important to consult with an experienced tax consultant in this space to ensure that your non-residency has been formally declared, regardless of the number of years you have lived abroad. Our tax team can certainly assist in this regard and can be contacted on [email protected] or at [email protected].

You will be in good hands.