For many South African expatriates living and working in the Middle East, ongoing geopolitical instability has created understandable uncertainty regarding long-term plans, family arrangements and future residence intentions.
While many expatriates are committed to continuing their international careers abroad, the evolving regional environment is increasingly influencing how South African expatriates approach one of the most important aspects of tax planning: formally concluding South African tax residence with the South African Revenue Service (SARS).
The current uncertainty not only affects whether expatriates seek to cease tax residence, but also directly impacts the basis on which they report their status to SARS – and whether that basis can subsequently remain sustainable if circumstances change.
This distinction has become extremely important.
South Africa operates on a residency-based tax system. As a result, where SARS treats an individual as a South African tax resident, that individual may continue to be taxable in South Africa on worldwide income and gains, regardless of where he or she lives or works.
However, expatriates wishing to cease South African tax residence generally rely on one of two broad approaches:
- Claiming that they have permanently ceased South African tax residence on the basis that they are no longer ordinarily resident in South Africa; Or
- Relying on the application of a double taxation agreement (“DTA”), where they remain technically resident under domestic law but are treated exclusively as tax residents in the other country under the relevant treaty.
The differences between these approaches have always been important. However, in the current geopolitical climate, it has become increasingly sensitive.
Why is the basis relied upon in the case of SARS more important than ever?
Many South African expatriates working in the Middle East originally relocated abroad to access international employment opportunities, increase their earning potential and provide greater financial security for their families.
In recent consultations, many expatriates have indicated that despite concerns related to regional instability, they currently wish to continue living and working abroad, provided that their employer's operations remain stable, their employment conditions are secure, and family life can continue safely and permanently in the region.
At the same time, however, many migrants have also expressed that if regional conflict begins to affect their spouse or children – particularly schooling, security, or day-to-day family stability – they may consider sending their families back to South Africa while continuing to work abroad.
These emerging circumstances create significant complexity when determining the correct basis on which South African tax residence should be terminated.
A migrant who approaches SARS on the basis that they have migrated permanently and no longer ordinarily reside in South Africa may subsequently face difficulties if their family returns to South Africa earlier than anticipated, they themselves return to South Africa within a relatively short period, their Middle East employment becomes unstable or circumstances ultimately demonstrate that the move abroad was not as permanent as originally projected.
Conversely, some migrants may rely on DTA-based status on the grounds that their stay abroad remains primarily employment-related, while maintaining the possibility of eventually returning to South Africa.
The challenge is that geopolitical instability may rapidly change the taxpayer's factual circumstances once SARS has already accepted a particular ground for non-residence.
risk of relying on wrong grounds
One of the biggest risks currently faced by migrants is choosing a ground for terminating residence that later turns out to be inconsistent with their conduct or surrounding circumstances.
Abolishing South African tax residence is not simply an administrative choice or a strategic priority chosen on a SARS form.
The basis relied upon must be consistent with the actual facts, intentions and long-term circumstances of the taxpayer at the relevant time.
Where SARS subsequently concludes that the original basis relied upon was incorrect, or shortly thereafter becomes inconsistent with the taxpayer's conduct, the consequences may extend far beyond a simple compliance dispute.
Potential risks may include:
- SARS is withdrawing or challenging a previously approved non-residence result;
- Disputes regarding the taxpayer's effective termination date;
- Retroactive taxation on worldwide income and profits;
- interest and understatement penalties;
- increased scrutiny of offshore assets and structures;
- Disputes regarding treaty application; And
- Complications associated with retirement withdrawals and exchange control treatments.
This becomes particularly sensitive where migrants told SARS that they had left South Africa permanently, but subsequently returned within a relatively short period due to instability in the Middle East.
Similarly, where taxpayers relied on treaty-based residence statuses while maintaining substantial family and economic ties with South Africa, SARS may subsequently reassess whether the treaty status remained sustainable during the relevant period.
Returning to South Africa too soon could create future SARS challenges
One of the practical difficulties arising from geopolitical instability is that many migrants cannot predict with certainty their long-term intentions.
A person may actually intend to remain abroad indefinitely at the time of ceasing South African tax residence. However, war-related instability, family concerns, educational disruption, or employment uncertainty may later force a return to South Africa sooner than originally anticipated.
Although changed circumstances do not automatically mean that the original position was dishonest or invalid, SARS may still investigate whether the taxpayer's conduct has been consistent with the basis originally relied upon.
This is particularly relevant in cases where expatriates return to South Africa shortly after formalizing non-residence, spouses and children permanently relocate back to South Africa, permanent homes are re-established locally, or employment abroad ends earlier than expected.
In these situations, SARS may seek to reassess whether the taxpayer had indeed ceased usual residence when the claim was originally made, or whether the treaty-based status remained factually sustainable.
A strategic and defensive approach is necessary
For South African expatriates currently living in the Middle East, the current environment requires a far more careful and strategic approach to tax residency planning than many may initially appreciate.
The objective should not simply be to end South African tax residence as quickly as possible. Rather, expatriates should ensure that the basis relied upon is appropriately aligned:
- their real intentions at the time;
- the degree of permanency associated with their relocation abroad;
- their family and home circumstances;
- their employment structure; And
- Realistic likelihood of future return scenarios.
The circumstances of each migrant remain highly fact-specific.
In a time of geopolitical uncertainty where family arrangements, employment stability and long-term intentions can rapidly evolve, choosing the wrong basis for terminating South African tax residence could expose taxpayers to significant future disputes with SARS.
South African expatriates working in the Middle East who are considering terminating tax residence, relying on treaty relief, or re-evaluating their long-term residence status should seek assistance from a suitably qualified border crossing tax specialist experienced in expatriate taxation, international tax treaties, SARS residence disputes and South African non-residence applications.
As SARS continues its focus on cross-border compliance and international financial visibility, ensuring that trust is built on the right basis from the start is more important than ever.
Written by Delano Abdol, Legal Manager of Cross Border Taxation at Tax Consulting SA and Vivian Cox, Expatriate Tax Consultant at Tax Consulting SA