The Importance of a Tax Diagnostic Report for South African Expatriates
The Tax Diagnostic process entails a non-invasive review of a taxpayers eFiling profile, through investigating the records held by SARS. This information is then compared with the taxpayer’s unique circumstance to determine if there are any discrepancies between the SARS records and current circumstance.
Alex Mahundla
SARS Tax Compliance Specialist
Chrispos Seete
SARS Process Administrator Expatriate Tax
Thereby allowing for tax planning and road mapping prior to SARS engagement as to mitigate risk for the taxpayer on future engagement with SARS.
Why is the Tax Diagnostic Report Advisable?
- Assessment of Historical Compliance: The review allows for an accurate assessment of historical compliance, aligning past practices with current tax regulations accepted by SARS.
- Risk Mitigation: Identifying potential issues in advance enables the mitigation of risks associated with changes in tax residency status, crucial for those using the Double Taxation Agreements (“DTA”) deeming principles, undergoing financial emigration or intending to cease tax residency. As well as those seeking to ensure compliance in terms of resident expatriate tax laws and exemptions.
- CIPC Status Check: Conducting a background check on the CIPC status ensures a comprehensive evaluation of any company links within South Africa, a critical step for expatriates considering tax residency cessation.
Deemed CGT Review:
The Tax Diagnostic process includes a detailed examination of the taxpayer’s asset portfolio to determine the likelihood of deemed Capital Gains Tax implications. This is particularly pertinent to those seeking to formally cease residency or deem non-residency to a foreign jurisdiction. As both cessation routes would require the taxpayer to meet the obligations of section 9H, which requires a deemed sale of all capital assets. As such, where a taxpayer has these potential for exposure this is flagged, and a computation engaged upon to determine the potential liability of cessation.
Out of the Frying Pan, Into the Fire
In April 2023, SARS introduced the new Approval International Transfer (AIT) Tax Compliance Status (TCS) Pin, which replaced the “Emigration” TCS Pin and the “Foreign Investment Allowance” (“FIA”) TCS Pin.
The AIT TCS Pin is now the go-to requirement for SA tax residents to transfer more than R1 million of capital abroad, per year, and in the case of tax non-residents, every cent of capital that is transferred out of SA (outside of certain limited scenarios).
Initially, this new “enhanced” AIT process appeared to be simplifying the previous complex one. However, the documentation and information now required by SARS are much more extensive than before, making the process far more meticulous and burdensome.
One such onerous process is the disclosure of your tax residency status if you are a SA tax non-resident. When you tick this box during the AIT TCS Pin process, you will need to supply SARS with your Non-Resident Tax Status. If you have not yet obtained this, it may frustrate the process or result in a rejection by SARS.
Additionally, throughout the process, one needs to disclose both their local and foreign assets and liabilities (at cost), along with the sources of the value sought to be transferred and documentary evidence in this regard.
The introduction of the AIT TCS Pin follows the theme of SARS introducing new systems and requirements that contrast the sentiments set out in the 2021 Budget Speech. To a significant degree, these changes have been unavoidable, with SA needing to comply with the measures required by the Financial Action Task Force following the grey-listing of SA.
Nevertheless, these new changes have placed SA expats at a crossroads – do they maintain their financial ties with SA, or do they cut the cord and leave the SA tax net behind?
The Importance of Updated Personal Details on SARS eFiling:
SARS has more actively highlighted the importance for taxpayers to keep their registered particulars up to date. Furthermore, in terms of Section 23 of the Tax Administration Act (“TAA”), an individual must within 21 business days, notify SARS when their registered particulars have changed. This is to ensure the below is achieved with the revenue authority:
- Effective Communication: Accurate contact information ensures that expatriates receive critical updates, notifications, and deadlines from SARS, facilitating effective communication.
- Timely Access to Tax Records: Up-to-date personal details enable seamless access to tax records on the eFiling platform, essential for reviewing past submissions and preparing for future tax obligations.
- Security and Identity Verification: Keeping personal details current enhances the security of eFiling accounts, protecting against unauthorized access and fraudulent activity.
- Efficient Correspondence Handling: Updated contact information allows SARS to efficiently handle correspondence, including digital notices, requests for documentation, and other communications.
- Compliance with Legal Requirements: Providing accurate and up-to-date information is a legal requirement, ensuring compliance with tax authorities and avoiding penalties or consequences.
The Tax Diagnostic Report is therefore a valuable tool for expatriates in providing a roadmap to assess and optimize tax compliance. The initial focus allows for peace of mind on historic compliance to ensure any potential hurdles are ironed out. Whereafter, the correct tax optimisation steps can be undertaken to ensure continued compliance, especially in the depths of complex expatriate tax regulations and laws.