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Tax implications for expatriates returning to SA

21 Jun 2011

Sonja FrankReturning to South Africa after having spent an extended period abroad may raise various questions regarding tax implications.

The following case study will help answer some of these questions:

  • Mr X, a former South African, emigrated to a foreign country in the 1980’s.  
  • He now wishes to return to SA, his country of birth.
  • He has built up a wealth of foreign assets.
  • He assures you that he will not receive any income from a SA source.

When will Mr X be considered a resident for tax purposes in SA?

In terms of our Income Tax Act no 58 of 1962 (ITA), Mr X will become a resident for tax purposes when he becomes ordinarily resident here or when his physical presence in SA exceeds a certain amount of days, calculated over a period of five years. “Ordinarily resident” is a concept which is not defined in the ITA but which has been interpreted by our courts from time to time. As soon as Mr X has finally made up his mind that he wishes to relocate permanently to SA and make SA his “real home”, he will become a resident for tax purposes in SA. There will be a so-called “window period” during which a non-resident may live in SA but will remain non-resident for SA tax purposes, until such time as he may change his intention and take steps to carry it out.

However, the “window period” cannot continue for an unlimited period and accordingly the physical presence test also exists in our law. The definition of “resident” in section 1 of the ITA provides that a person shall become a resident for tax purposes in SA if that person was physically present in the Republic:

  • for a period exceeding 91 days in aggregate during the relevant year of assessment, as well as
  • for a period exceeding 91 days in aggregate during each of the five years of assessment preceding such year of assessment, and
  • for a period exceeding 915 days in aggregate during those five preceding years of assessment.

From the first day of the sixth year of assessment, Mr X will therefore become a resident for SA tax purposes based on the “physical presence” test. Please note that the latter test will only apply in the case where Mr X has, after living in SA for five years, failed to decide (form the intention) whether SA is now his real home.  

Does Mr X need to register as a taxpayer in SA?

In terms of section 67 of the ITA every person who at any time

  • becomes liable for any normal tax, or
  • who becomes liable to submit any return contemplated in section 66 of the ITA
    must, within 60 days after so becoming a taxpayer, apply to the Commissioner to be registered as a taxpayer.

Each year, usually during July, the South African Revenue Service (SARS) issues a Government Notice in terms of section 66 of the ITA which calls for the furnishing of returns by taxpayers. Mr X should note that, in terms of the 2010 Government Notice, the following natural persons are required to submit a return and thus register as taxpayers:

  • every resident who during the 2010 year of assessment held any funds in foreign currency or owned any assets outside the Republic, if the total value of those funds and assets exceeded R50 000 at any state during that year;
  • every resident to whom any income or capital gains from funds or assets outside the Republic could be attributed.

Until such time as Mr X becomes a resident for tax purposes, he will not need to register as taxpayer provided that he earns no gross income from a South African source. As soon as he becomes a resident, Mr X will have to register as a taxpayer and submit an income tax return based on the fact that the value of his foreign assets exceeds R50 000. This is irrespective of the fact that he does not earn income from a South African source.

For more information, contact Sonja Frank on tel. 021 882 8140 or e-mail sonja@exceed.co.za

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