The Difference
The SARS Non-Resident Tax Status Confirmation Letter is a letter confirming that one has ceased to be a tax resident of South Africa with an indication of the effective date tax residency was ceased.
The Emigration Tax Compliance (TCS) PIN is a confirmation that one receives when successfully undergoing the financial emigration (ceasing of tax residency) process with SARS. This is where one declares their remaining South African assets and complies with the ‘exit tax’ procedure to confirm tax non-residency.
To be able to apply for the SARS Non-Resident Tax Status Confirmation Letter one must have already completed the financial emigration (ceasing of tax residency) process through SARS. SARS will then issue the additional confirmation letter confirming tax non-residency, as the TCS pin for Emigration is only valid for 1 year from date of issue.
Ultimately, the purpose is to remove any doubt or confusion arising from the 1-year validity period of the TCS pin.
Understanding Tax Resident vs Tax Non-Resident
As a Tax Resident, you are legally required to submit tax returns to SARS every year and declare your worldwide earnings (local and foreign) and then claim any exemptions or tax credits on the foreign earnings.
Importantly, if you do not formally note yourself as tax non-resident with SARS, then you will be seen as a tax resident in SA. Even if you have broken our tax residency tests, being the ordinarily residence test and physical presence test, or there is a Double Taxation Treaty in place, these factors are not going to automatically change your status to tax non-resident. The only way to change your tax status is to formally undergo the relevant legal processes through SARS.
Merely ticking a box on a tax return or being physically absent from SA does not cease your tax residency in South Africa. The SA tax system works on two principles:
(a) the onus is on the taxpayer to declare their tax position; and
(b) the taxpayer then bears the onus of proof, on a balance of probabilities, to provide evidence of their declared tax position.
As a tax non-resident, South Africa’s expatriate tax law no longer applies, and you will not be liable to pay tax in South Africa on your foreign earned income. SA tax non-residents are only taxed on SA sourced income.
Benefits of Ceasing your Tax Residency
After ceasing your tax residency, you will start to enjoy the many benefits of being an SA tax non-resident, hence the importance of having all the necessary and correct documentation.
Some of the benefits of being a tax non-resident are:
- You will be taxed on South African sourced income only;
- Capital gains tax will only be applicable on fixed property located in South Africa /assets of permanent establishment;
- No other capital gains tax;
- No world-wide tax even on remittances; and
- No donations tax and / or estate duty.
Financial Emigration also provides the rare opportunity to encash your retirement annuity in full once you have been tax non-resident for 3 years.
If you are unsure of your current tax status, it is vital you conduct a tax diagnostic exercise to assess your position per SARS’ records. The exercise will reveal if you correctly ceased your tax residency according to South African legislation and in the formal process of declaration through SARS. It is always best to seek specialist advise when it comes to cross-border taxation and tax residency matters, especially when complemented by legal experts.
