An analysis of ceasing to be tax resident in South Africa ...

An analysis of ceasing to be tax resident in South Africa

SK Mac Hutchon

orcid.org/0000-0002-3168-7904

Mini-dissertation accepted in partial fulfilment of the requirements for the degree Master of Commerce in

Taxation at the North-West University

Supervisor: Prof K Coetzee

Graduation: May 2020

Student number: 31374743

i

ACKNOWLEDGEMENT

To those people in my life who knew I could do this:

Thanks to my family who kept me sane and gave me the encouragement to finish;

To my friends who accepted my absences and stood by me through this process;

To God and the prayers from my small group that kept be going;

To my study leader Karina Coetzee, who gave me guidance.

ii

ABSTRACT

Since the announcement of the change in the foreign employment exemption in the National

Budget in 2017, and the increase in the global networking, as well as political uncertainty in South

Africa, many South Africans have left the country, either on a temporary or permanent basis, to

start a new life somewhere else.

The implications of leaving South Africa permanently, is a decision that will affect a person, both

practically, and from a tax and exchange control perspective. The facts and circumstances for

each person exiting South Africa need to be addressed on a case by case basis to determine how

he will be affected from a tax and exchange control point of view.

SARS has a comprehensive set of residency rules that need to be applied from a tax perspective

and there is international case law and double tax agreements that need to be examined in order

to determine a person’s tax position. From an exchange control perspective further rules and

regulations exist where a person wish to exit from South Africa permanently and extract their

remaining assets from South Africa in the most productive way possible. Emigrating from an

exchange control perspective will also affect any future transactions taking place when that

person wishes to transact with South Africa in the case of investment and receiving an inheritance.

In comparing the tax legislation and exchange control restrictions in South Africa to that of India

and Russia sought to determine the similarities the three countries may exhibit. All three countries

being regarding as developing nations with large numbers of persons exiting their country of origin

to relocate to other parts of the world.

In making the comparison between South Africa, Russia and India it can be seen that South Africa

has a more advanced set of rules surrounding the breaking of tax residency that can be used as

a guide by Russia and India in protecting the extent of their tax revenue leaving their shores on

emigration. From a domestic perspective, it could be recommended that SARS implement a

practical system in order to monitor the change of taxpayer’s residency to help align the legislation

with the practical implementation and the interaction between SARS and the SARB. South Africa

has a firm set of legal guidelines and interpretation surrounding the ceasing to be resident. The

practical application of the law, however, does not always align with the legislation.

iii

KEYWORDS USED

Ceasing to be resident

Double taxation agreement

Exchange control residency

Natural person

Tax residency

iv

TABLE OF CONTENTS

ACKNOWLEDGEMENT.................................................................................................. I

ABSTRACT .................................................................................................................. II

KEYWORDS USED ...................................................................................................... III

TABLE OF CONTENTS ................................................................................................ IV

LIST OF ABBREVIATIONS ........................................................................................ VIII

LIST OF FIGURES ........................................................................................................ IX

CHAPTER 1: INTRODUCTION ...................................................................................... 1

1.1 Introduction ......................................................................................................... 1

1.2 Background to study ........................................................................................... 2

1.3 Motivation of the study ........................................................................................ 4

1.4 Reference to previous studies ............................................................................ 6

1.4.1 Study one ........................................................................................................... 6

1.4.2 Study two ............................................................................................................ 6

1.5 Problem statement ............................................................................................. 7

1.6 Research objectives ........................................................................................... 7

1.6.1 Primary objective ................................................................................................ 7

1.6.2 Secondary objectives .......................................................................................... 7

1.7 Research methodology ....................................................................................... 8

v

1.8 Chapter overview .............................................................................................. 10

1.8.1 Chapter 1: Introduction ..................................................................................... 10

1.8.2 Chapter 2: The definition of tax residency ......................................................... 10

1.8.3 Chapter 3: A comparison .................................................................................. 10

1.8.4 Chapter 4: Summary and conclusions .............................................................. 11

CHAPTER 2: THE DEFINITION OF TAX RESIDENCY ............................................... 12

2.1 Introduction ....................................................................................................... 12

2.2 Domestic tax legislation .................................................................................... 12

2.2.1 The first residency test – being ordinarily resident ............................................ 15

2.2.2 The second residency test – the physical presence resident ............................ 19

2.3 The application of a double taxation agreement................................................ 20

2.3.1 Article 4 of the OECD Model Tax Convention ................................................... 22

2.3.2 Tax resident in two countries ............................................................................ 23

2.3.3 The application of a DTA in a South African context ......................................... 24

2.4 Exchange control .............................................................................................. 24

2.4.1 Exchange control restrictions applicable to natural persons .............................. 25

2.4.2 Exchange control residency .............................................................................. 27

2.5 Permanent residency ........................................................................................ 28

2.6 Ceasing to be tax resident for income tax purposes ......................................... 29

2.6.1 Domestic legislation .......................................................................................... 29

2.6.1.1 Practical implications of ceasing to be a tax resident ........................................ 33

2.6.1.1.1 Current SARS practice when filing an income tax return ................................... 33

vi

2.6.1.1.2 Two years of assessment in a 12-month period ................................................ 34

2.6.1.1.3 Income earned from a South African source ..................................................... 37

2.6.1.1.4 Taxes due to SARS in respect of the exit charge .............................................. 38

2.6.2 Ceasing to be tax resident in terms of the ordinarily residence test ................... 39

2.6.3 Ceasing to be tax resident in terms of the physical presence test ..................... 41

2.6.4 Ceasing to be a tax resident in terms of a DTA ................................................. 42

2.7 Ceasing to be a resident for exchange control .................................................. 43

2.7.1 Tax clearance application ................................................................................. 44

2.8 Ceasing to be a permanent resident ................................................................. 45

2.9 Conclusion ........................................................................................................ 45

2.9.1 Income Tax ....................................................................................................... 46

2.9.2 Permanent residency and citizenship ............................................................... 47

2.9.3 Exchange control .............................................................................................. 47

2.9.4 Summary table ................................................................................................. 48

CHAPTER 3 – A COMPARISON ................................................................................. 49

3.1 Introduction ....................................................................................................... 49

3.2 Tax residency in India ....................................................................................... 50

3.2.1 Domestic tax legislation .................................................................................... 50

3.2.2 Ceasing to be tax resident ................................................................................ 51

3.2.3 Double Taxation Agreements ........................................................................... 53


3.2.5 Ceasing to be resident from a visa/citizenship perspective ............................... 54

vii

3.2.6 The emigration of Indian nationals for purposes of employment ....................... 55


3.3 Tax residency in Russia .................................................................................... 58

3.3.1 Domestic tax legislation .................................................................................... 58

3.3.2 Ceasing to be a tax resident ............................................................................. 59

3.3.3 Double Taxation Agreements ........................................................................... 59



3.4 A comparison.................................................................................................... 62

3.4.1 Income tax ........................................................................................................ 62



3.5 Conclusion ........................................................................................................ 65

3.5.1 Summary table ................................................................................................. 66

4.1 Conclusion ........................................................................................................ 68

4.2 Research objectives ......................................................................................... 68

4.2.1 First secondary objective .................................................................................. 68

4.2.2 Second secondary objective ............................................................................. 70

4.3 Overall conclusions and recommendations ....................................................... 71

REFERENCE LIST ....................................................................................................... 73

viii

LIST OF ABBREVIATIONS

For the purposes of this document, the following acronyms apply:

Acronym Description

AEOI Automatic Exchange of Information

BRICS Brazil, Russia India, China and South Africa

CBR Central Bank of Russian Federation

CBDT Central Board of Direct Taxes

CGT Capital Gains Tax

CMA Common Monetary Area

CRS Common Reporting Standard

DTA Double Taxation Agreement

FATF Federal Tax Services

FTS Federal Tax Service of Russia

HUF Hindu Undivided Family

MTC Model Tax Convention

OCI Overseas Citizen of India

OECD Organisation for Economic Co-operation and Development

OEEC Organisation for European Economic Co-operation

PIO Persons of Indian Origin

RBI Reserve Bank of India

SARB South African Reserve Bank

SARS South African Revenue Service

UK United Kingdom

UN United Nations

USA United States of America

ix

LIST OF FIGURES

Figure 2-1: A typical loop structure ................................................................................. 26

x

LIST OF TABLES

Table 2-1: Illustration of becoming resident in South African in terms of the physical

presence test after ceasing to be ordinarily tax resident ............................... 41

Table 2-2: Summary of residency ................................................................................. 48

Table 3-1: Income tax comparative summary ................................................................ 66

Table 3-2: Exchange control comparative summary ...................................................... 67

Table 3-3: Immigration comparative summary .............................................................. 67

1

CHAPTER 1: INTRODUCTION

1.1 Introduction

Before 1 January 2001, South Africa’s income tax system was source-based, taking into account

a few concessions, where residency was not the primary measure used to determine a person’s

taxable income in South Africa. South Africa adopted a residence-based system of taxation on

1 March 2001, resulting in a South African natural person being subject to tax on their worldwide

income (South African Revenue Service (SARS), 2000:1-4).

In South Africa, there are three distinct definitions of residency –

Being a resident of South Africa for immigration purposes, governed by the South African

Department of Home Affairs, in terms of section 25, 26 and 27 of the Immigration Act

(13 of 2002) (South Africa, 2002);

Being a resident of South Africa for exchange control purposes, governed by the definition

set out by the South African Reserve Bank (SARB) currency and exchange manual for

authorised dealers (hereafter referred to as the Exchange Control Manual) (South African

Reserve Bank (SARB), 2019:18); and

Being a resident of South Africa for tax purposes, as set out in section 1 of the Income

Tax Act (58 of 1962) (South Africa, 1962) (hereafter called the Income Tax Act), which

relies on South African domestic legislation as set out in section 1 of the Income Tax Act,

international case law, and the interaction with a Double Taxation Agreement (DTA).

In the tax year ending 29 February 2000, before the change in the tax regime, for a South African

tax resident working abroad the only exemption from income tax available to them in South Africa

was section 10(1)(o) of the Income Tax Act. The section only extended to South African taxpayers

working as officers or crew members of a ship engaged in the international transportation of

passengers or goods or prospecting or mining for minerals (SARS, 2000b). In light of the change

in the tax system – to one of residence based, this section was amended to now also include

South Africans earning income from foreign employment as per the Revenue Laws Amendment

Act (59 of 2000) (South Africa, 2000a).

One of the reasons for the change in the South African tax system mentioned by National

Treasury in a media briefing dated 15 September 2000 was ‘to bring the South African tax system

more in line with international tax principles’. Another was ‘to place the income tax system on a

sounder footing, thereby protecting the South African tax base from exploitation’ (SARS, 2000:1).

2

On 22 February 2017, the Minister of Finance, Pravin Gordhan, declared his intention to remove

the foreign employment exemption from the South African tax legislation currently found in section

10(1)(o)(ii) of the Income Tax Act. This change was applied because the exemption was found to

be ‘excessively generous’ (National Treasury, 2017a:138).

1.2 Background to study

As set out in the full budget review published by the National Treasury of the Republic of South

Africa on 20 February 2019, the National Treasury estimated a revenue shortfall of R42.8 billion

in 2018/19 (National Treasury, 2019:35). The Treasury is, therefore, trying to collect additional

revenue from as many sources as possible to make up the shortfall.

Following the announcement in the National Budget in February 2017, there was much discussion

in the expatriate community leading to some misunderstanding and confusion. As per a radio

interview on 702 Talk Radio in August 2018, Jonty Leon, a manager at Financial Emigration stated

after the announcement in the budget to repeal the foreign employment exemption in its entirety;

he had seen an increased surge of South Africans choosing to leave South Africa. Those that

have already left without previously formalising their exit are choosing to return to South Africa to

complete the process in order for them to no longer be South African residents (Leon, 2018).

The definition of a resident in section 1 of the Income Tax Act is a natural person who is ‘ordinarily

resident in the Republic’ or, if not ‘ordinarily resident’, someone who meets the requirements of

the ‘physical presence test’ (South Africa, 1962). The Income Tax Act does not, however, define

the term ‘ordinarily resident’, so one would need to turn to case law in order to establish the

international principles to support the determination as per SARS interpretation note 3 (SARS,

2018a:2).

The physical presence test is a time test, based on the number of days that a person is physically

present in South Africa. When addressing the concept of residency from a domestic tax legislation

point of view, this test will only apply should a taxpayer not be regarded as ordinarily resident in

South Africa during any year of assessment (SARS, 2018b:2). This test becomes important

should a taxpayer break residency in terms of the ordinarily residence test and continue to visit

South Africa after this date.

To align South African tax principles to those used internationally, the definition of resident in the

Income Tax Act also needs to take international tax treaties into account. Double tax treaties may

exclude a taxpayer from being a resident of South Africa based on their facts and circumstances

(Olivier & Honiball, 2011:24).

3

The purpose of a double tax treaty/agreement (DTA) is to alleviate tax paid in two countries where

there is a conflict between the taxpayer being resident for tax in both countries or where a taxpayer

is a resident in one, but the source of the income is in another (Olivier & Honiball, 2011:276).

There is a specific Article set out in the DTA between two countries that assists with the

determination of the tax residency status of a taxpayer in each country. To try and maintain a

consistent standard between the various treaties entered into, the Organisation for Economic Co-

operation and Development (OECD) has published their Model Tax Convention (MTC) including

explanatory commentary to assist as a guide (Olivier & Honiball, 2011:268). As per the OECD

MTC and most DTA agreements, the concept of residency is discussed in ‘Article 4’ (OECD,

2017:32). Where a DTA is agreed between two countries, it is vital to study this Article as should

the residency definition be different to that used in domestic legislation, the DTA definition will

apply.

The definition of a resident for exchange control purposes, set out in the Exchange Control

Manual, is a separate definition to that set out in the Income Tax Act (SARB, 2019b:18). In terms

of section B.2 J(i)(b) of the Exchange Control Manual, formalising an emigration via the SARB

requires the applicant to obtain a tax clearance certificate from SARS to confirm their tax

compliance status (SARB, 2019b:73-80). In terms of section 9H of the Income Tax Act, ceasing

to be regarded as a resident of South Africa for tax purposes does not refer to an exchange control

application being a requirement for SARS (South Africa, 1962).

Based on the report-back hearing to the Standing Committee on Finance and Select Committee

on Finance in Parliament, a concession was made to change the existing foreign employment

exemption as an alternative to the complete repeal of this section as initially proposed (National

Treasury, 2017b:6-9). Up until the change in legislation the exemption in section 10(1)(o)(ii) of

the Income Tax Act (58 of 1962) (South Africa, 1962) stated that all remuneration earned by an

individual working outside of South Africa during the period in question would be exempt from tax

in South Africa should all of the following criteria be met:

A taxpayer has to be a South African tax resident;

Receive remuneration for services rendered outside South Africa; and

That taxpayer needs to be outside South Africa for a period exceeding 183 full days in

aggregate during any period of 12-months as well as for a continuous period of more than

60 full days during those 12-months.

The change to section 10(1)(o)(ii) of the Income Tax Act has been promulgated into law as per

sub-paragraph (ii) to be amended for the words preceding items (aa) by section 16(1)(g) of the

Taxation Laws Amendment Act of 2017 (South Africa, 2017). This law will come into operation

4

with effect from 1 March 2020, being applicable in respect of years of assessment commencing

on or after that date.

As a result of the change, the same criteria as before need to be met. However, only the first

R 1 million of the remuneration earned during the qualifying 12-month period is exempt from

income tax (South Africa, 1962). The remuneration over R 1 million is subject to South African

income tax as per the tax tables legislated by Treasury, that is as per the progressive tables as

published in Schedule 1 of the Rates and Monetary Amounts and Amendments of Revenue Act

each year (South Africa).

The complication arises when it first needs to be determined whether the taxpayer will remain a

tax resident of South Africa, while the services are being rendered abroad for the exemption to

still apply. This process uses domestic legislation and examination of the DTA where applicable.

The practical implications of verifying the foreign tax credit to be deducted against this income

subsequently need to be investigated. In some cases, the taxpayer will be paying tax in both

countries, and only able to claim relief at a later date (SARS, 2009:1-4).

Since the budget announcement in February 2017 to completely repeal the foreign employment

exemption, it has become abundantly clear that many expatriates who left South African many

years ago are now enquiring about their tax residency status in South Africa. Even though this

foreign employment exemption has been a part of South African tax legislation for many years,

South Africans are only now questioning its application and whether the exemption applies to

them. Some taxpayers, having broken tax residency in South Africa many years ago in terms of

a DTA, are only now wanting to formalise their emigration. As many taxpayers were not aware of

the exit charge due to SARS in terms of section 9H of the Income Tax Act, it may result in

additional tax paid to the SARS (Researcher’s observations based on media coverage and

interaction with public).

1.3 Motivation of the study

One of the main incentives encouraging expatriates to locate to the Arabian Gulf for employment

purposes is the remuneration earned in the Gulf (Baruch & Forstenlechner, 2017). Currently, the

personal income tax rate in the Gulf countries – including Kuwait, Qatar, Saudi Arabia and the

United Arab Emirates is zero per cent (Trade Economics, 2019). This results in the remuneration

earned being tax-free at the source. Although the cost of living in these countries is quite high,

the incentive to work there remains favourable due to the nil tax rate for personal income tax.

As per the International Migration Report 2017 Highlights document published by the United

Nations (UN), international migration numbers have increased faster than the world’s population.

5

As per the report, ‘the share of migrants in the total population increased from 2.8 per cent in

2000 to 3.4 per cent in 2017’ (UN, 2017:5).

According to Gerald Seegers, Director of Human Resources at PwC Southern Africa, ‘many

companies are facing the reality that they do not have the right talent in the right places to fulfil

their global growth ambitions’. Some of the reasons include a skills gap in foreign market places

with an ever-changing corporate environment. The younger generation also has a greater

propensity to travel, highlighting the need for more international work opportunities. PwC has

noted that the number of workers who travel to other countries for work opportunities and spend

more than one or two weeks at a time in a foreign country increased to approximately 8% of the

workforce, with the average length of assignment being around 18 months (PwC, 2013).

In some cases, the exodus of skilled professional(s) has become a significant concern, particularly

in the health profession, where the emigration potential increases due to the degradation of the

working and living conditions in South Africa for these professionals (Crush & Pendleton, 2010).

Many South African residents seek employment opportunities outside South Africa, either out of

necessity, to expand their expertise or for the tax benefit of not paying tax in South Africa having

the benefit of the foreign employment exemption. In many cases, they pay little or no tax in the

foreign jurisdiction, and as a result, live a more lavish lifestyle in South Africa while still enjoying

the benefits of the country without paying tax. In some cases, however, the decision to work

abroad is not always to minimize the tax that is paid to SARS, as many expatriates have

permanently relocated to countries outside of South Africa (Researcher’s observations based on

media coverage and interaction with public).

As per an article in the City Press on 17 January 2019, ‘Although neither the Department of Home

Affairs nor the International Relations Department keeps figures on how many people are leaving

the country for good, anecdotal evidence suggests a sharp rise in emigration among South

Africans seeking new lives abroad’ (Zanayriha, 2019). According to this same article, experts

predicted that last year had one of the highest number of emigrations placed on record after a

sudden increase in 2015 when records reflect that more than 25,000 South Africans relocated to

other countries.

As per government notice no 192 published in government gazette 40660 dated 3 March 2017,

SARS has also now agreed to be part of the Automatic Exchange of Financial Information (AEOI),

better known as the Common Reporting Standard (CRS). As per this gazette, financial

information, including income earned in foreign jurisdictions for the period 1 March 2016 to

6

28 February 2017, must be reported to SARS by that foreign jurisdiction’s revenue authority by

31 May 2017 (SARS, 2017).

As of 24 April 2019, 105 countries have signed the Multilateral Competent Authority Agreement

on AEOI and intended first information exchange date, including South Africa (OECD, 2019).

There will come a time where South African tax residents working for a foreign employer deposit

income into an offshore account located in a tax jurisdiction signed up with CRS. This income will

be reported to SARS, and SARS will become aware of income if not disclosed to them.

As a result of the above, there is often a misunderstanding about the concept of tax residency

and the breaking of tax residency where taxpayers have permanently left South Africa to take up

employment in other countries. It could even be argued that there is a weakness in the South

African personal income tax system, in the monitoring of a person’s tax residency status in light

of taxpayers relocating to other countries for purposes of employment. The current change in

legislation affecting the foreign employment exemption resulted in more South Africans

investigating their residency status and discovering that they have unknowingly already broken

tax residency in terms of a DTA.

1.4 Reference to previous studies

In preparation for this study, two previous studies were reviewed.

1.4.1 Study one

The mini-dissertation of Anne du Plessis was reviewed. Her mini -dissertation was examined in

October 2018 by North-West University (Du Plessis, 2018).

The title of her study was ‘a review of the residency definition for natural persons in the South

African income tax regime’.

Although her study also addresses the issue of residency in South Africa questioned as a result

of the change in the foreign employment exemption legislation, it focuses on the concept of

residency. This study concentrates more on the legislation governing the breaking of tax

residency and the practical issues encountered as a result of no longer being a tax resident in

South Africa and the practical implications thereof.

1.4.2 Study two

The masters thesis of Richard Loyson was reviewed. His dissertation was examined in 2010 by

Nelson Mandela Metropolitan University (Loyson, 2010).

7

The title of his study was ‘a critical analysis of the income tax implications of persons ceasing to

be resident of South Africa’.

Although his study also addresses the issue of residency in South Africa, his study addressed the

implications for all taxpayers including persons other than a natural person. His study was also

completed in 2010. The laws surrounding tax residency have been amended since this time and

new legislation has been implemented following this study in relation to ceasing to be a tax

resident. This study concentrates more on the legislation governing the breaking of tax residency,

particularly with reference to the taxpayer who is a natural person which is a different focus to his

study.

1.5 Problem statement

The changes in the foreign employment exemption could result in an increased number of

taxpayers approaching SARS in order to break tax residency in South Africa. From the above the

following problem statement can be formulated: The implications of a natural person breaking tax

residency and the process thereof are complex and must be analysed. The question arises as to

how to interpret the rules surrounding the breaking of tax residency and whether other countries

could provide a better solution.

1.6 Research objectives

1.6.1 Primary objective

This study considers the current meaning of the definition of residency for a natural person

according to the Income Tax Act, and the interaction with the definition of residency for exchange

control purposes and country residency rules. This study will specifically focus on the steps to be

taken where a taxpayer ceases to be tax resident as a result of their relocation to other countries

on a permanent or semi-permanent basis.

1.6.2 Secondary objectives

To critically analyse who is a resident for tax purposes in South Africa, considering South

African income tax legislation, foreign case law interpretation and the application of double

tax agreements (Chapter 2);

To review the impact of breaking tax residency in South Africa and the notion of financial

emigration via a comparison (Chapter 3); and

To conclude and make possible recommendations as to what can be learnt from the

discussion details in Chapter 3 (Chapter 4).

8

1.7 Research methodology

As part of this study, the research methodology is determined by the ontology and epistemology

of the researcher, which develops the thought process leading to a conclusion.

Ontology comes from two Greek words: on, which means ‘being’, and logia, which

means ‘study’. So ontology is the study of being alive and existing… something we all

ponder at one point or another. When you see the word ontology, think of Hamlet

agonizing over ‘To be, or not to be’ or Descartes stating ‘I think, therefore I am’

(Vocabulary.com, 2019).

Epistemology deals with the starting place of understanding in assessing the opportunities and

limitations of thoughts and ideas (Dudovskiy, 2019a). Before starting to analyse a problem, a

comprehensive understanding of the subject matter as a whole is essential increasing knowledge

of the problem at hand.

Realism research is dependent on the concept of reality from the human psyche. This viewpoint

is grounded on the supposition of an analytical and controlled style in developing awareness and

ideas (Dudovskiy, 2019c).

On the other hand, in terms of the New World Encyclopaedia (2015), relativism is the view where

there is no outright belief in human behaviour. Samples of various behaviours need to be gathered

and observed to determine a true understanding of a collective view or belief.

In studying the area of tax legislation, certain tax concepts are defined in legislation, depending

on the individual inspection of the facts. The interpretation of this legislation can, however, change

the outcome of the final answer as more than one source needs investigation and opinion to reach

a conclusion and avoid a narrow focus. Case law and real-life events may also impact the result.

In particular, when dealing with taxpayers who are natural persons, no two person’s facts and

circumstances may be the same.

Positivism and Interpretivism can be identified as two key aspects of ontology (Dudovskiy, 2019b)

as can be detailed below:

Positivism is grounded on the understanding that whatever happens can be verified through

research, observation, and plausible evidence. Positivists are predominantly realists, usually

considering that scientific development eliminates or dramatically reduce the difficulties

facing mankind (Philosophy Terms, 2018). Positivists conventionally emphasise quantitative

9

research, such as surveys in order to determine the social trend and view of society

(Thompson, 2015).

Interpretivists, on the other hand, take the general approach that their research is more

qualitative, using unstructured dialogue or participant observation. Interpretivists believe that

individuals are not mere pawns that respond on command to social influences but are more

accepting and aware of why their behaviour is as it is (Thompson, 2015). Interpretivism is

likely to result in the subjective interpretation of the researcher based on the facts identified

as part of the study, where the hypothesis of the research could still be subject to change

(McKerchar, 2008). ‘Interpretive research does not predefine dependent and independent

variables, but focuses on the complexity of human sense making as the situation emerges’

(Heinz et al., 1999).

The positivist approach is not well suited to this study as this approach takes a narrow line based

on the outcome of plausible quantifiable evidence. It is more suitable for a more interpretive

approach whereby historically promulgated legislation addressing tax residency in South Africa is

questioned to gain a wider perspective of the intention of the legislation.

A taxpayer’s residency status will vary from person to person, depending on their circumstances.

Approaching South African income tax legislation relating to residency from a different

perspective may assist in determining whether the current legislation addressing residency could

improve or whether there are any weaknesses in the current legislation.

This study will analyse the legislation and the changes relating to the definition of residency and

the breaking of tax residency, taking the foreign employment exemption into account.

International clarification will be sought concerning the definition of tax residency, as although this

concept is legislated, it relies heavily on case law and international guidance to support any

conclusions. In order to determine why specific legislation exists and its interpretation, various

views need to be examined to evaluate the consensus and understanding of the idea behind the

implementation.

This study used a doctrinal research methodology. As set out by Terry Hutchinson (2015) in an

article relating to the doctrinal method: ‘legal academic success has been measured within a

doctrinal methodology framework, which includes the tracing of legal precedent and legislative

interpretation. The essential features of doctrinal scholarship involve ‘a critical conceptual

analysis of all relevant legislation and case law to reveal a statement of law relevant to the matter

under investigation.’

10

This study follows an inductive process of examining existing legislation and its interpretation and

drawing conclusions based on common observations. A comparison assists in determining

whether there are any shortfalls in the law taking into account and reviewing the relevant DTAs

between South Africa and other countries in the study, as the terms of these agreements vary.

This study seeks to identify similarities between countries with high numbers of taxpayers leaving

their tax system, due to the breaking of tax residency and exiting their domestic tax systems and

the tax treatment thereof. Examining the criteria of breaking tax residency in three countries with

a large number of taxpayers leaving their tax system, could reveal any similarities and ways that

the South African requirements for breaking residency can be improved on from both a tax and

exchange control perspective.

1.8 Chapter overview

1.8.1 Chapter 1: Introduction

Chapter 1 sets out the background to the study, which includes the motivation for the research

on this topic, problem statement, research objectives and methodology.

1.8.2 Chapter 2: The definition of tax residency

Chapter 2 sets out the meaning of tax residency in South Africa with the focus on when a taxpayer

ceases to be tax resident in South Africa and when this is applicable. Chapter 2 will also examine

the international commentary concerning tax residency and the interaction with OECD MTC and

the UN tax treaties.

Chapter 2 will also include a discussion of financial emigration and the distinction between tax

and exchange control residency.

1.8.3 Chapter 3: A comparison

Chapter 3 compares the tax laws in South Africa, India and Russia in relation to their residency

rules, and the treatment when breaking tax residency. Both India and Russia, as well as being

part of the Brazil, Russia, India, China and South Africa (BRICS) countries, have a high level of

migrants leaving the country to seek work elsewhere (UN, 2017). All three countries have

exchange control restrictions concerning cross-border transfers. A brief comparison of the

regulations set out by the respective Reserve Banks will also be looked at as part of this

comparison.

11

1.8.4 Chapter 4: Summary and conclusions

Chapter 4 will provide any concluding comments concerning this study as well as possible

recommendations for improvements of the system.

The next chapter will now address the definition of tax residency in South Africa in more detail.

12

CHAPTER 2: THE DEFINITION OF TAX RESIDENCY

2.1 Introduction

This chapter examines the definition of tax residency in more detail, taking into account the

nuances between income tax and exchange control definitions of residency. It refers to

international commentary and case law dealing with the international interpretation of tax

residency.

With reference to the secondary objectives set out in paragraph 1.6.2 due to a possibility of a

natural person being subject to tax in more than one country, it is also essential to address the

interaction with the DTAs that South Africa has entered into with other countries. The OECD MTC

commentary will play a role when the interpretation of treaties is required, assisting in the specific

meaning of various phrases and words.

2.2 Domestic tax legislation

Before addressing the implications and requirements of ceasing to be a resident of South Africa

for tax purposes, it is essential to explore the definition of tax residency as set out below:

South Africa adopted the ‘residence minus’ system of tax on 1 January 2001 with the result that

residents of South Africa pay tax on their worldwide income (SARS, 2000a:1). The following

definition of a resident was inserted into the South African Income Tax Act with effect from

1 January 2001 by section 2(h) of the Revenue Laws Amendment Act (South Africa, 2000a):

’Resident’ means any –

(a) natural person who is—

(i) ordinarily resident in the Republic; or

(ii) not at any time during the year of assessment ordinarily resident in

the Republic, if such person was physically present in the Republic—

(aa) for a period or periods exceeding 91 days in aggregate during

the relevant year of assessment, as well as for a period or

periods exceeding 91 days in aggregate during each of the

three years of assessment preceding such year of

assessment; and

13

(bb) for a period or periods exceeding 549 days in aggregate

during such three preceding years of assessment:

Provided that—

(A) for the purposes of items (aa) and (bb) a day shall include a

part of a day; and

(B) where a person who is a resident in terms of this

subparagraph is physically outside the Republic for a

continuous period of at least 330 full days immediately after

the day on which such person ceases to be physically present

in the Republic, such person shall be deemed not to have

been a resident from the day on which such person so ceased

to be physically present in the Republic.

This early definition did not, however, cater for circumstances where a taxpayer was resident in

South Africa and another country as a result of their residency. A further amendment was added

to the definition of residency with effect from 26 February 2003 by the following insertion to the

definition (South Africa 2003) ‘but does not include any person who is deemed to be exclusively

a resident of another country for purposes of the application of any agreement entered into

between the governments of the Republic and that other country for the avoidance of double

taxation’.

It was, however, recognised by the Treasury in the 2005 National Budget that South Africa had a

scarcity of skills and to encourage the influx of expatriates into South Africa the window of time

used to determine whether a natural person would become resident was extended (National

Treasury, 2005:82). In 2005, section 3(i), the Revenue Laws Second Amendment Act (South

Africa, 2005) then amended the 91 days test explained in (aa) of the definition of a resident to be

applied over five years and not three years. Furthermore, in relation to (bb) of the definition, the

aggregated period over the now five-years changed to 915 days, effectively more than half a year

in each of the five years.

The current definition of resident set out in section 1 of the Income Tax Act about natural persons

reads as follows:

(i) ordinarily resident in the Republic; or

(ii) not at any time during the relevant year of assessment ordinarily resident in

the Republic, if that person was physically present in the Republic—

14

(aa) for a period or periods exceeding 91 days in aggregate during the

relevant year of assessment, as well as for a period or periods

exceeding 91 days in aggregate during each of the five years of

assessment preceding such year of assessment; and

(bb) for a period or periods exceeding 915 days in aggregate during those five

preceding years of assessment, in which case that person will be a resident with effect

from the first day of that relevant year of assessment: Provided that—

(A) a day shall include a part of a day, but shall not include any day that a person

is in transit through the Republic between two places outside the Republic

and that person does not formally enter the Republic through a ‘port of entry’

as contemplated in section 9 (1) of the Immigration Act, 2002 (Act No. 13 of

2002), or at any other place as may be permitted by the Director-General of

the Department of Home Affairs or the Minister of Home Affairs in terms of

that Act; and

(B) where a person who is a resident in terms of this subparagraph is physically

outside the Republic for a continuous period of at least 330 full days

immediately after the day on which such person ceases to be physically

present in the Republic, such person shall be deemed not to have been a

resident from the day on which such person so ceased to be physically

present in the Republic…

but does not include any person who is deemed to be exclusively a resident of another

country for purposes of the application of any agreement entered into between the

governments of the Republic and that other country for the avoidance of double

taxation: Provided that where any person that is a resident ceases to be a resident

during a year of assessment, that person must be regarded as not being a resident

from the day on which that person ceases to be a resident… (South Africa, 1962).

The first residency test as per subsection (i) of the definition above determines whether a person

is ordinarily resident for tax in South Africa. There is no legislated definition of ordinarily resident

in the Income Tax Act and SARS issued guidance by way of interpretation note 3, first published

on 2 February 2001 and last updated on 20 June 2018 (SARS, 2018a).

The determination as to whether a taxpayer meets the requirements of being ordinarily resident

is necessary before the application of the physical presence test set out in subsection (ii) of the

15

definition of resident. The physical presence test only applies where a person does not meet the

requirements of being ordinarily resident.

It is critical that the term ‘ordinarily resident’ should also not be misunderstood to be the same as

the meaning of domicile or nationality. Becoming a resident for purposes of Home Affairs rules

and the concept of immigration and emigration for exchange control purposes are also

independent tests (Williams, 2005:11).

More discussion with regards to the above two tests follows below.

2.2.1 The first residency test – being ordinarily resident

In deciding whether a person is ordinarily resident in a particular country, the examination of the

facts unique to each taxpayer having regard to the foundations established in case law is required

(Williams, 2005:11). International and local case law has an important role in assisting with this

determination.

In a prominent residency case heard in the Canadian courts, Thompson v Minister of National

Revenue (Canada, 1946) it was described that a person would be ordinarily resident:

where in the settled routine of his life, he regularly, normally or customarily lives’ or

‘at which he in mind and in fact settles into or maintains or centralises his ordinary

mode of living with its accessories in social relations, interest and conveniences’

(Williams, 2005: 11).

In a 1983 English case Shah v Barnet, the term ‘ordinarily resident’ was described as a place

where ‘a person must be habitually and normally resident... apart from temporary or occasional

absences of long or short duration’ (United Kingdom, 1983).

When considering the ordinarily residence status of a married couple, in ITC 961 (1961) 24 SATC

648, a woman, formerly ordinarily resident in Zimbabwe, married a man in the United Kingdom

(UK) and set up home with him in the UK after their marriage. In this 1961 case, JCR Fieldsend,

said:

I do not think that that mental attitude is sufficient to alter the prima facie position that

on marriage to a man permanently resident in a country, with no intention of leaving

that country, a wife who sets up home with her husband there cannot be said to be

ordinarily resident elsewhere. She has an obligation to live with her husband in the

place he has chosen for the matrimonial home, and it would require very cogent

16

evidence to show that despite that obligation the wife in fact retained her pre-marital

residence (Federation of Rhodesia and Nyasaland, 1961:650).

In the case of Cohen v Commissioner for Inland Revenue (South Africa, 1946a:373) the facts

were as follows:

The taxpayer in question was domiciled in South Africa, but during the 1930s and 1940s travelled

extensively on business, spending about half his time in South Africa and the other in Europe and

America. The taxpayer derived his income from director’s fees and salaries from various

companies within South Africa as well as passive income from investments in public companies

located in South Africa.

During the 1940s, he applied for a permit to travel abroad with his family for nine months; this

period extended for a further year after that. It was always the view that the taxpayer and his

family would ultimately return home to South Africa as the taxpayer sub-let the furnished property

that he leased in South Africa for five years.

JA Schreiner in the Cohen case stated:

If, though a man may be ‘resident’ in more than one country at a time, he can only be

‘ordinarily resident’ in one, it would be natural to interpret ‘ordinarily’ by reference to

the country of his most fixed or settled residence… his ordinary residence would be

the country to which he would naturally and as a matter of course return from his

wanderings, as contrasted with other lands it might be called his usual or principal

residence and it would be described more aptly than other countries as his real home

(South Africa, 1946a:371).

RC Williams summarised the decisions of the courts and their understanding of what is ‘ordinarily

resident’ in the following cases:

• As held in the Levene v Inland Revenue Commissioner case – the degree of continuity in

which a taxpayer lives in one place, ignoring the times when the taxpayer may be accidentally

or temporarily absent from this place (Canada, 1928);

• As held in the H v COT case – the place where the taxpayer’s permanent place address is

located and where his/her possessions were kept while he/she was temporarily absent and

where he/she returned to after his/her travels (Southern Rhodesia, 1960);

• As held in the Soldier v COT case - the residence must be established and not seen to be a

semi-permanent or unintended dwelling place (Southern Rhodesia, 1943); and

17

• The concept of ‘ordinarily resident’ is more restricted than that of a resident and is a place

where a taxpayer typically resides.

In Commissioner for Inland Revenue v Kuttel JA Goldstone stated (South Africa, 1992a:306):

I can find no reason for not applying their natural and ordinary meaning to the

provisions now under consideration. … I would respectfully adopt the formulation of

Schreiner JA and hold that a person is ‘ordinarily resident’ where he has his usual or

principal residence, i.e. what may be described as his real home.

With international travel and international work opportunities being so readily available, it could

be argued that in some cases, a taxpayer may have a real home available to him anywhere, or

nowhere. Where multi-national corporates allow for some taxpayers to be in a perpetual state of

wandering, the onus of a taxpayer to determine his residency status may not be that clear

(Williams, 2005: 12).

Being physically present in South Africa at all times is not a prerequisite to be regarded as

ordinarily resident. It is the intention of the taxpayer and the indicative steps that the taxpayer

takes to make South Africa his real home that needs addressing (SARS: 2002).

In terms of SARS interpretation note 3, some of the factors that can assist in the determination of

whether a natural person is ‘ordinarily resident’, can be listed as follows:

• Is it the intention of the taxpayer to be ordinarily resident in South Africa?

• Where is the taxpayer’s most fixed and settled place of residence?

• Which place is the taxpayer’s habitual abode, where he/she reside most often – looking

at the taxpayer’s lifestyle and mode of life?

• In which country does the taxpayer have the most business and personal interests and

family ties?

• In which country is the taxpayer employed and where is his/her economic centre?

• What is the taxpayer’s immigration status, in which country does the taxpayer have

permission to reside permanently, and if the taxpayer has a work permit, what are the

conditions of his/her stay in a country?

• Where are the personal belongings of the taxpayer?

• In which country does the taxpayer have nationality?

• Where is the taxpayer’s family and social relations closer – where are his/her friends,

sports and recreational clubs, places of worship?

• Does the taxpayer have political, cultural and other ties?

• What is the frequency of visits to other countries and the purpose thereof?

18

Where a person is ordinarily resident in South Africa, but also resident in another country because

of the application of a DTA, the question as to which country that person will is exclusively resident

is discussed further in 2.3 below.

The fact that a natural person has accepted employment outside of South Africa does not

automatically result in him/her being regarded as a non-resident for tax purposes. In some cases,

when temporarily abroad, carrying out a two-year employment assignment, the taxpayer

maintains his/her property in South Africa with the majority of his economic investments and family

connections still in South Africa. In terms of the ordinarily residence test, he/she is likely to remain

a resident of South Africa.

In a recent Australian case, Harding v Commissioner of Taxation (Australia, 2018), a taxpayer

was found to be a resident of Australia, even though mostly absent from Australia working abroad

between the period of 2006 and 2018. In terms of Australian tax legislation, to be a tax resident

in Australia, the ordinary concept and domicile tests must be met, similar to our ordinarily resident

test.

In this case, the taxpayer was an aircraft engineer working in the Middle East. His wife and

children who originally accompanied him to Saudi Arabia returned to Australia in 2004 due to the

unrest of the Middle East, where they remained, and his children completed school. The taxpayer,

although receiving a permanent employment post in Bahrain in 2009, moved around to various

bases as part of his employment. The taxpayer returned to Australia from time to time on vacation,

where it was held that he maintained a residence. The taxpayer argued that the property was

merely a temporary home for his wife and children to live in until his son finished school. The

courts found, however, that as a result of the permanent abode in Australia and that fact that he

could move freely around the Middle East as part of his employment, Australia was his actual

place of residence (Cliffe Dekker Hofmeyr 2018).

Taken on appeal to the Federal Court of Australia, the judgement dated 22 February 2019 for this

case overturned the above decision and found that that the taxpayer was not a resident of

Australia. It was held by the honourable Logan, Davies and Steward that the Commissioner had

made his decision based on the taxpayer’s financial ties in Australia, including his property and

investments. It was, however, concluded in Harding v Commissioner of Taxation (Australia, 2019),

that these and other factors were not sufficient to conclude that the taxpayer was still a resident

of Australia when the taxpayer intended to leave Australia indefinitely and not to return. It was

held that:

19

I have accepted that, at this point in his life, his decision was to leave Australia

permanently come what may and regardless of whether his family followed him at a

later date. In those circumstances, the financial arrangements which remained in

place, or which were put in place subsequent to his departure, are more properly

regarded as the remnants of his prior residency and the fact that he retained ongoing

responsibilities to Mrs Tracy Harding and her children for whom Mr Harding provided.

They should not be seen as indicators of a continuing intention to maintain residency

in Australia.

It should be added that the factor of where a person maintains investments may, in

these days, have little bearing on where a person resides. In the past quarter of a

century there has been a growing internationalisation of investment markets which

has increased the ability of people in one country to make investments in businesses

in other countries. In this case it is, perhaps, not surprising that Mr Harding maintained

significant investments in the relatively stable financial markets in Australia despite

having abandoned his residency here.

Therefore from the above it can be deduced that applying the definition of residency to a married

couple is not clear cut. One needs to address the facts and circumstances in relation to the actions

of each individual and the facts and circumstances surrounding their individual and collective

residency.

2.2.2 The second residency test – the physical presence resident

The second test to be applied in the Income Tax Act set out in paragraph (ii) of the definition of

resident in the Income Tax Act, is a time test based on the number of days that a taxpayer is

physically present in South Africa. The basis of this test is the number of days a taxpayer is in

South Africa and must be applied on an annual basis to any non-resident spending time in South

Africa. If at any stage during this test, should the taxpayer by way of his actions or intentions

regard himself as ordinarily resident, then this test will not apply. That person would be regarded

as a resident of South Africa in terms of test one (SARS, 2018b:2).

In terms of the definition of a resident set out in 2.2 above, the following criteria need to be

necessary for the physical presence test to apply:

• The taxpayer needs to be physically present in South Africa for more than 91 days in the

relevant year of assessment; and

• The taxpayer needs to be physically present in South Africa for more than 91 days in each

of the five preceding years of assessment; and

20

• The taxpayer needs to be physically present in South African for more than 915 days in

aggregate during the five preceding years of assessment.

Should all three of the above requirements be met, the taxpayer will be deemed to be a tax

resident of South Africa from the first day of the relevant year of assessment. When applying this

test, it should also be noted that a part of a day, even 10 minutes, will be regarded as a full day

in South Africa, unless the taxpayer is in transit through South Africa between two countries

outside South Africa (SARS, 1962).

The physical presence test is applied to look back in time, starting in the current year of

assessment and going back over the previous five years of assessment. It can, therefore, only be

applied after the taxpayer has already been travelling to South Africa for a period of five years.

If a taxpayer is present in South Africa as a result of a three-year work visa, and it is unlikely that

he extends his contract and will return to his country of origin after those three years are complete,

it is clear that he will not meet the requirements of the physical presence test as he has not spent

sufficient time in South Africa. The taxpayer safely remains a non-resident for tax purposes.

Should it be that the taxpayer extends the contract in South Africa for more than five years he

must be mindful of the physical presence test as he is regarded as a resident of South Africa with

effect from the beginning of the year of assessment in which he met the conditions of this test.

Should it be found that a person meets the requirements of the physical presence test, as well as

being a resident of another country because of the application of that other country’s legislation,

the DTAs need to be examined to determine in which country they are exclusively resident. The

application of a DTA will be discussed below in 2.2.

Depending on the frequency of travel to South Africa, and time spent in the country during a year

of assessment, it could take many years for a natural person to become a tax resident according

to this test. It may also give rise to the possibility that the taxpayer may be ordinarily resident in

South Africa, due to his continual return to South Africa.

2.3 The application of a double taxation agreement

There may often be a case where a natural person is subject to tax on the same income in two

different countries. Double taxation treaties aim to release a person of the obligation to pay tax in

two different countries at the same time. In this case a person is regarded as a tax resident in two

countries or where income is subject to tax in one country as a result of being from a South African

source and taxed in another as a result of the person’s residency (Olivier & Honiball, 2011:277).

21

The elimination of double taxation can be achieved using two different approaches: In the first

approach by way of an exemption – where the income or capital that is subject to tax in the country

is exempt from tax in the country of residence. This exception occurs when the income or capital

has its source only in one country that is not the country of residence. The second method would

be by way of a tax credit allowed in the country of exclusive residence. This instance takes place

when income or capital earned by a person is subject to tax in both the country of residence and

the source country (OECD, 2017:17).

Model tax conventions published by various international organisations depend on the purpose

and scope of relief required between the countries entering into the agreements. The most

commonly used MTCs are published by the OECD (Olivier & Honiball, 2011:268).

The members of the OECD found it appropriate to simplify and standardise the financial position

of taxpayers engaged in international commercial, industrial and other activities to best streamline

a common resolve to be used to eliminate double taxation across multiple countries in similar

circumstances. The OECD, therefore, published their MTC on income and capital, including

detailed commentary to assist member countries with interpretation to the various provisions and

Articles common to most DTAs. The first suggestions were proposed by the Organisation for

European Economic Co-operation (‘OEEC’) on 25 February 1955 when 70 DTAs were signed

between countries who were members of the OECD. The impact of the MTC expanded beyond

the member countries and other interested parties leading to the publication of the Model

Convention in 1992, which embraced the various comments and revisions made since 1977.

Since the first version published in 1992, the MTC has been updated and changed ten times,

taking into account changes in the international community with relevance to its content (OECD,

2017: 9-13).

The UN MTC, by comparison, has much in common with that of the OECD MTC discussed directly

above as well as in 1.2. The UN convention had adopted the OECD MTC and generally indulges

the country where the source of the taxing rights is stronger, looking at where the investment is

made rather than who made the investment and is primarily based on double taxation conventions

between Developed and Developing Countries (UN, 2017:iii).

Article 1 of the OECD MTC, addresses the persons covered by a DTA. In terms of this Article

where a DTA exists between two countries, that agreement applies to persons who are resident

in one or both of the countries who signed the agreement (OECD, 2017:28).

Article 1 of the UN MTC similarly applies to a natural person on a similar basis, although in terms

of the UN model the scope of the conventions and to whom it applies was previously more

22

restrictive, including ‘citizens’ as persons to whom the treaty will apply (UN, 2017:59). The

domestic definition of residency in each country is, therefore, vitally important and needs defining

before applying any DTA.

2.3.1 Article 4 of the OECD Model Tax Convention

Article 4 of the MTC addresses the definition of who is a resident. This definition differs from treaty

to treaty.

The general structure of this Article defines who is considered to be a resident in paragraph 1 and

then sets out the tie-breaker clause in paragraph 2. The tiebreaker will only apply where the

person to whom the MTC applies, is resident in both countries and assists with the determination

of where that person is exclusively resident.

Paragraph 1 of Article 4 states that –

the term ‘resident of a Contracting State’ means any person who, under the laws of

that State, is liable to tax therein by reason of his domicile, residence… and also

includes that State and any political subdivision or local authority thereof as well as a

recognised pension fund of that State. This term, however, does not include any

person who is liable to tax in that State in respect only of income from sources in that

State or capital situated therein.

This definition is quite broad, and as the MTC is only a general guideline, it can change from

treaty to treaty. As an example, when looking at the DTA between South Africa and the United

States of America (USA) –

In terms of Article 4, a resident of the USA is defined as: ‘any person who, under the laws of the

United States, is liable to tax therein by reason of his domicile, residence, citizenship….’ And a

resident of South Africa is: ‘any individual who is ordinarily resident in South Africa…’. The above

reveals that in order to meet the definition of resident, it could be necessary to examine a person’s

domicile, residence, citizenship and the tax concept of whether they are ‘ordinarily resident’

(SARS, 2019b:5).

From a South African perspective, the term ‘domicile of choice’ is ‘acquired by a person when he

is lawfully present at a particular place and intends to settle there for an indefinite period’ (South

Africa, 1992b). The word ‘domicile’ is defined as ‘the country that a person treats as their

permanent home, or lives in and has a substantial connection with’ (Lexico, 2019).

23

As per the OECD commentary, it states that the term ‘resident’ when looking at the MTC should

refer to the concept of residence concerning the domestic laws of the countries in question and

primarily aims at addressing that person’s attachment to that country (OECD, 2017:106). It is

advantageous to understand or seek advice on the tax laws for each country to assist with this

determination.

Having citizenship in a country, as a determining factor is self-explanatory. In most cases,

however, many natural persons will not have immediate citizenship when relocating to another

country but instead obtain permanent residency in that country for a period before obtaining

citizenship. This is a clear indicator and does not require any additional investigation or analysis

to determine.

2.3.2 Tax resident in two countries

Where a taxpayer is resident in terms of the domestic legislation of two countries and a DTA is

available, paragraph 2 of Article 4 sets out the tie-breaker rules to be applied to determine where

a taxpayer is exclusively resident.

Using the OECD MTC as reference (OECD, 2017:30), the tie-breaker rules are as follows:

Whereby reason of the provisions of paragraph 1 an individual is a resident of both

Contracting States, then his status shall be determined as follows:

a) he shall be deemed to be a resident only of the State in which he has a

permanent home available to him; if he has a permanent home available to

him in both States, he shall be deemed to be a resident only of the State with

which his personal and economic relations are closer (centre of vital interests);

b) if the State in which he has his centre of vital interests cannot be determined,

or if he has not a permanent home available to him in either State, he shall be

deemed to be a resident only of the State in which he has an habitual abode;

c) if he has an habitual abode in both States or in neither of them, he shall be

deemed to be a resident only of the State of which he is a national;

d) if he is a national of both States or of neither of them, the competent authorities

of the Contracting States shall settle the question by mutual agreement.

Applying the tie-breaker rules set out in paragraph 2 of the DTA can be quite a common

application when relocating to another country. A person can have a home in both countries and

24

have an equal amount of personal and/or economic ties in South Africa and the other country. In

this instance, the decision of residency needs to be determined by ‘competent authorities’ being

the revenue authorities of each country to which the DTA is being applied (OECD, 2017).

As described in the commentary to the DTA, the costs of approaching the relevant authorities can

vary in relation to the arbitration process required. This takes place in terms of Article 25 of the

respective DTA, or with guidance to the MTC, should the relevant DTAs relating to the countries

not address a similar Article addressing the mutual agreement between tax authorities (OECD,

2017).

2.3.3 The application of a DTA in a South African context

Currently, South Africa has signed a DTA, and in some cases a protocol, with 23 other African

countries and 56 countries outside of Africa. Copies of such agreements and when it was signed

and ratified are available on the SARS website (SARS, 2019c).

When determining a person’s tax residence status, the first step is to apply the domestic

legislation as set out above in 2.2, and by applying the domestic legislation in the other country

that the taxpayer would be resident. The second step would then be to check the SARS website

to determine whether a DTA has been entered into between South Africa and that other country.

Where a person is resident for tax in both countries, the DTA will then be able to determine in

which country they are exclusively resident as detailed in 2.3.

If there is no DTA between South Africa and the other country, that person’s residency is

determined using domestic legislation only, as no alternative is available to supersede domestic

legislation. Where the terminology used in a DTA requires additional clarity, the commentary given

by the OECD MTC can generally be used for interpretation purposes.

2.4 Exchange control

The Republic of South Africa established the Exchange Control Regulations in South Africa in

some form since 1939. The Currency and Exchanges Act no 9 was promulgated in 1933 together

with the Exchange Control Regulations promulgated in terms of section 9(1) of this Act on

1 December 1961. As stated in the regulations, the South African Treasury has been granted the

authority and permission to grant exemptions with regards to South African foreign currency

reserves. The Minister of Finance, however, delegates all duties and powers imposed on the

Treasury concerning these regulations to the Governor of the SARB (SARB, 2019b:12).

25

The primary purpose of the SARB is to realise and preserve consistency in the interest of

balanced and sustainable economic development in South Africa (SARB, 2019a). Since its

incorporation, the SARB has been owned by private shareholders. To date, more than 750

shareholders have taken up shares. No more than 10 per cent of the total profits earned by the

SARB is attributable to the shareholders, with the bank operations not having a primary motive of

generating profits but rather serving the best interests of the country (SARB, 2019d).

2.4.1 Exchange control restrictions applicable to natural persons

Unless specifically exempt, resident individuals are subject to the Exchange Control Regulations

promulgated in terms of section 9(1) of the Currency and Exchanges Act (9 of 1933) (Olivier &

Honiball, 2011:733).

As a natural person who is resident for exchange control purposes, a resident has two allowances

available in order to invest funds outside of South Africa. The first being a capital allowance of

R10 million, where an individual, with the support of a tax clearance obtained from SARS, remits

R10 million per calendar year offshore for investment purposes (SARB, 2019b:46). The second

allowance is the single discretionary allowance of R1 million per calendar year that does not

require a tax clearance certificate and can be used for any legal purpose abroad, including for

travel and investment purposes (SARB, 2019b:94). Where any funds are externalised other than

using these two allowances, such investments will be regarded as unauthorised and held in

contravention of Exchange Control Regulations.

In terms of Regulation 6 of the Exchange Control Regulations, if a resident becomes entitled to

any foreign currency, they are obligated to make a declaration of such currency to their Authorised

Dealer. Furthermore, the foreign currency needs to be repatriated to South Africa and offered to

an Authorised Dealer for conversion into ZAR within 30 days (South Africa, 1961:9-10). There

are, however, exceptions to this regulation, such as when the services rendered for which the

individual received remuneration were outside of South Africa. In this case the remuneration need

not be remitted back to South Africa. (SARB, 2019b:151).

In terms of Regulation 7 of the Exchange Control Regulations, where a resident becomes entitled

to foreign assets, they are required to advise their local Authorised Dealer in writing of details of

the asset they acquired and how it was obtained within 30 days of receipt. The individual is not

entitled to sell such an asset without first seeking permission from the SARB (South Africa,

1961:12). Foreign inheritances received from the estate of another exchange control resident fall

under Regulation 7, and be retained abroad if the funding of the assets took place via the

regulated channels available to the deceased. Where an inheritance is received from a non-

26

resident estate after 17 March 1998, such inheritance is exempt from this regulation (SARB,

2019b:151).

Where a natural person has utilised their foreign capital allowance and invested funds in an

offshore structure, they must also be mindful of Regulation 10(1)(c) of the Exchange Control

Regulations. This regulation prohibits the direct or indirect export of capital from South Africa,

loosely referred to as a loop structure (South Africa, 1961:14). Where there is a loop structure,

this is seen as a contravention of this regulation.

A loop structure is as follows – where a person invests into an offshore structure, being a trust or

a company, using his foreign capital allowance or assets/currency authorised by the SARB. The

foreign structure then, in turn, reinvests into South Africa by way of purchasing shares/property

investment in a South African structure. Any income and/or capital then earned in/by the South

African structure is then directly and indirectly exported from South Africa (Olivier & Honiball,

2011:734-735).

Figure 2-1: A typical loop structure

(Olivier & Honiball, 2011:735)

Up until 31 October 2019, a private individual was prohibited from entering into a loop structure

as described above. The SARB have now relaxed their requirements, now allowing a private

individual to invest up to 40 per cent in a foreign target entity which can in turn reinvest into South

Africa, on application to the SARB. (SARB, 2019).

South African

Company

BVI Company

South African resident settles/ loans funds into offshore trust

Jersey Offshore Trust hold 100% shares in BVI Company

BVI Company holds 100 % shares in South African Company

Dividends and capital gains

Overseas

South Africa

27

2.4.2 Exchange control residency

In terms of the definition set out in A.1 of the Exchange Control Manual –

A resident ‘means any person (i.e. a natural person or legal entity) who has taken up

permanent residence, is domiciled… in South Africa….’

A non-resident ‘means a person (i.e. a natural person or legal entity) whose normal place

of residence, domicile or registration is outside the Common Monetary Area (CMA).’

(The CMA ‘means the Common Monetary Area, which consists of Lesotho, Namibia,

South Africa and Swaziland.’)

This is the only reference made to assist with the definition of resident for exchange control

purposes. There is no definition in the Currency and Exchange Act (9 of 1933) (South Africa,

1933) or the Exchange Control Regulations (South Africa, 1961). The definition is also not defined

in the Interpretation Act (South Africa, 1957). It is, therefore, necessary to look at the ordinary

meaning of resident set out in the Exchange Control Manual (Olivier & Honiball, 2011:720).

The comparison of the definition of resident and the practical and legal interpretation from an

exchange control and income tax perspective has various outcomes. A person can be both tax

and exchange control resident in South Africa or a tax resident and not an exchange control

resident, or vice versa. There can be no assumption that if a person is a tax resident in South

Africa, he is also an exchange control resident (Olivier & Honiball, 2011:720-721).

Should a person be resident in Lesotho, Namibia or Swaziland, a country other than South Africa

but still within the CMA, they are non-resident for tax purposes (not regarded as a resident of

South Africa in terms of domestic legislation – see discussion in 2.2 above). As per this definition,

from an exchange control perspective, the individual is not a resident nor non-resident, as the

person does not live outside the CMA. Similarly, a taxpayer may meet the definition of being

ordinarily resident in South Africa for tax purposes, as they regard South Africa as their principal

place of residence, but do not meet the requirements of a resident concerning the exchange

control definition of a resident (Olivier & Honiball, 2011:720-721).

Depending on how a natural person comes to be in South Africa clarifies whether they are

regarded as a foreign national or new immigrant. The natural person needs to declare his

exchange control residency status (i.e. foreign national or new immigrant) to his bankers on

opening a bank account. Should his ‘immigration’ status change with the Department of Home

Affairs, for instance, when that person receives permanent residency in South Africa, they should

28

advise their bankers accordingly and update their exchange control status (SARB, 2019b:113-

118).

In terms of the definition set out in A.1 of the Exchange Control Manual (SARB, 2019b: 16-17) –

Foreign nationals ‘mean natural persons from countries outside the CMA who are

temporarily resident in South Africa, excluding those on holiday or business visits.’

The term immigrants ‘mean natural persons who emigrated from countries outside

the CMA with the firm intention of taking up or having taken up permanent residence

in South Africa.’

If a natural person declares that he is a foreign national, he can open a resident bank account in

South Africa. He will not have the same restrictions applicable to a resident for exchange control

purposes with regards to his foreign assets. The SARB monitors his cross border transactions,

and restricts what he can repatriate out of South Africa, and who he can send it to (SARB,

2019b:109).

A ‘new immigrant’, within five years from the date of their immigration being on record, may

retransfer their funds/assets arriving in South Africa, provided that they can produce evidence of

the funds/assets introduced into South Africa. After five years, a ‘new immigrant’ would be

regarded as a resident an should they then wish to leave South Africa on a permanent basis, they

will be required to go through the formal process of formalising their emigration from South Africa

via an Authorised Dealer. When submitting an emigration application to the SARB, the Authorised

Dealer attending to the application needs to be satisfied that the person emigrating is leaving

South Africa permanently. The Authorised Dealer will also need to be satisfied that the growth in

any assets declared on the application form is realistic in comparison to what was introduced into

South Africa via the new immigrant based on the facts and circumstances (SARB, 2019b:111-

112).

2.5 Permanent residency

In terms of the definition of permanent residency in terms of section 25(1) of the Immigration Act

(13 of 2002) (South Africa, 2002): ‘[t]he holder of a permanent residence permit has all the rights,

privileges, duties and obligations of a citizen, save for those rights, privileges, duties and

obligations which a law or the Constitution explicitly ascribes to citizenship’. In order to be able to

apply for permanent residency in South Africa, motivation is required as to the provision of a

meaningful contribution to South Africa by becoming a resident and do not qualify as an

undesirable or prohibited person. One of the ways is that with or without a spouse, direct

29

permanent residency in South Africa is permitted if an individual has lived in South Africa as a

result of a work permit for at least five years (South Africa, 2019).

As shown in 2.2 above, the South African income tax legislation does not require a person to hold

permanent residency in South Africa. When applying the ordinarily residence test, obtaining

permanent residency will however assist in motivating that a person has made South Africa his

primary place of residence and home. It would be difficult to argue that someone is making South

Africa his home when he is only in South Africa on a three year work permit. When applying the

physical presence test, however, it would be possible to meet the requirements of the definition

of residency as per the Income Tax Act and not be a permanent resident of South Africa.

2.6 Ceasing to be tax resident for income tax purposes

As stated above, there are three ways in which a natural person becomes a tax resident of South

Africa. Similarly, there are three means by which a natural person becomes a non-resident for tax

purposes –

Ceasing to be ordinarily resident in South Africa;

Ceasing to meet the physical presence test in South Africa; and

Breaking tax residency in terms of the application of a DTA.

Before addressing the above, however, it is valuable to look at the tax implications of breaking

tax residency in South Africa.

2.6.1 Domestic legislation

In terms of the definition of gross income in section 1 of the Income Tax Act, a South African

resident is subject to tax on their worldwide income. A non-resident only pays tax on their income

earned from a South African source or a source deemed to be in South Africa. In the Lever

Brothers and Unilever case (South Africa, 1946b), the conclusion was that in determining the

source of income there were two areas of measurement – the first being to identify the originating

cause of the income, and the second is to identify the location of that cause (Olivier & Honiball,

2011:12).

The Capital Gains Tax (CGT) perspective in terms of paragraph 2(1)(b)(i) of the Eighth Schedule

to the Income Tax Act is as follows: A person who is not a resident of South Africa is only subject

to tax on their immovable property located in South Africa, or any interest or right of whatever

nature of that person to or in immovable property situated in South Africa. Paragraph 2(2) of the

30

Eighth Schedule to the Income Tax Act then expands on the criteria of what is regarded as

immovable property in subparagraph 2(1)(b)(i) mentioned above.

In terms of paragraph 12(1) of the Eighth Schedule to the Income Tax Act as was promulgated in

2001, in the event of a natural person ceasing to be a resident -

a person will be treated for the purposes of this Schedule as having disposed of an

asset described in that subparagraph for proceeds equal to the market value of the

asset at the time of the event and to have immediately reacquired the asset at an

expenditure equal to that market value.

This being applicable to all assets other than those listed in paragraph 2(1)(b)(i) and (ii) of the

Eighth Schedule in terms of the then paragraph 12(2)(a) of the Eighth Schedule to the Income

Tax Act (South Africa, 2001).

Similarly paragraph 12(4) of the Eighth Schedule also triggers paragraph 12(1) when a person

commences to be a resident of South Africa. In which case they are also have seemed to have

disposed of their assets other than those listed in paragraph 2(1)(b)(i) and (ii) of the Eighth

Schedule to the Income Tax Act (South Africa, 2001).

However, paragraph 12(1) was amended by the Taxation Laws Amendment Act (22 of 2012)

(South Africa, 2012b) to remove any reference to breaking residency. A new section 9H of the

Income Tax Act was inserted in the Income Tax Act to deal with the tax consequences to changing

residency with effect from 1 April 2012.

This section was similar in nature to paragraph 12(1) prior to its amendment in 2011. It stated that

where a person ceases to be a resident of South Africa for tax purposes, they would be deemed

to have disposed of their worldwide assets on a date immediately before the day on which they

cease to be a resident and to reacquire the asset immediately after the date of disposal. In this

section, immovable property, as contemplated in paragraph 2(2) was excluded from the above.

As set out in the Explanatory Memorandum to the Taxation Laws Amendment Bill of 2012 (SARS,

2012:109-113), section 9H of the Income Tax Act was then amended again in 2012, as a result

of a Supreme Court of Appeal decision on 8 May 2012 – the case between CSARS and Tradehold

Limited (South Africa, 2012a). In the Tradehold case, a company incorporated in South Africa

ceased to be regarded as a resident taxpayer in South Africa, which triggered a deemed disposal

as stated in paragraph 12(1) of the Eighth Schedule mentioned above.

The point of contention in the Tradehold case was the application of Article 13(4) of the DTA

between South Africa and Luxembourg, the new country of residence of Tradehold. The courts

31

took the view that the DTA applied in respect of the deemed disposal and Tradehold Limited was

exempt from the CGT ‘exit charge’ payable by a taxpayer when no longer regarded as being tax

resident in South Africa. The courts were silent with regards to whether the DTA applies to a

deemed disposal that took place before the taxpayer broke residency. The international precedent

has, however, concluded that relief in terms of a DTA would not apply to a deemed disposal while

a person was still resident. A DTA generally applies after establishing that a correlation exists

between countries (South African, 2012a).

The resolve to making this change was to align the South African exit charge with international

practice and to clarify that a person will not be exempt from this exit charge as a result of the

application of a DTA on the day before they cease to be resident. Although the Tradehold case

did not affect a natural person, the principle of the decision and the application of the DTA can

apply to all persons who cease to be resident in South Africa, and the judgement prompted the

change in the legislation taking place (SARS, 2012:109-113).

Section 9H of the Income Tax Act was then substituted by a new 9H that came into effect on

8 May 2012 and applied to persons that cease to be a resident on or after that date (South Africa,

2012b). This section was also extended to include headquarter companies and persons that

ceased to be a controlled foreign company. For purposes of this discussion, this section refers

only to a natural person.

Section 9H (2) and 9H (4) of the Income Tax Act, where applicable to natural persons, currently

reads as follows:

(2) Subject to subsection (4), where a person (other than a company) that is a

resident ceases during any year of assessment of that person to be a resident—

(a) that person must be treated as having—

(i) disposed of each of that person’s assets to a person that is a

resident on the date immediately before the day on which that

person so ceases to be a resident for an amount received or

accrued equal to the market value of the asset on that date; and

(ii) reacquired each of those assets on the day on which that person so

ceases to be a resident at an expenditure equal to the market value

contemplated in subparagraph (i);

32

(b) that year of assessment must be deemed to have ended on the date

immediately before the day on which that person so ceases to be a

resident; and

(c) the next succeeding year of assessment of that person must be deemed

to have commenced on the day on which that person so ceases to be a

resident.

(4) Subsections (2)… do not apply in respect of an asset of a person where that

asset constitutes—

(a) immovable property situated in the Republic that is held by that person;

(b) . . . . .

(c) any asset which is, after the person ceases to be a resident or a controlled

foreign company as contemplated in subsection (2) or (3), attributable to

a permanent establishment of that person in the Republic;

(d) any qualifying equity share contemplated in section 8B that was granted

to that person less than five years before the date on which that person

ceases to be a resident as contemplated in subsection (2) and (3);’

(e) any equity instrument contemplated in section 8C that had not yet vested

as contemplated in that section at the time that the person ceases to be a

resident as contemplated in subsection (2) and (3); or

(f) any right of that person to acquire any marketable security contemplated

in section 8A.’

The significant change from the previous application of the exit charge (prior to the insertion of

section 9H of the Income Tax Act effective on 8 May 2012), is that in terms of section 9H(2)(b)

and (c) of the Income Tax Act. A natural person ends one year of assessment on the date

immediately before the day they cease to be a resident and starts a new year of assessment, as

a non-resident on the next succeeding day of assessment. As an example – if a person ceased

to be a tax resident on 25 December 2018, they now have two years of assessment – one being

from 1 March 2018 to 24 December 2018 (being 299 days) and a new year of assessment being

from 25 December 2018 to 28 February 2019 (66 days). The two tax years, although mentioned

in section 9H are not practically accounted for at SARS from a compliance perspective, as

discussed in further detail below.

33

2.6.1.1 Practical implications of ceasing to be a tax resident

2.6.1.1.1 Current SARS practice when filing an income tax return

Since 1 August 2007, SARS implemented a system whereby income tax returns can be

completed electronically via e-filing and not manually through the completion of an income tax

return obtained from a SARS branch office or post office (SARS, 2007). As per the manual return

that a taxpayer was required to complete and return to SARS, questions addressing the issue of

tax residency were recorded on the form. These questions asked a taxpayer to disclose whether

they were a tax resident of South Africa and if not, to complete the number of days they were

physically present in South Africa to determine their tax residency (if they were non-resident

taxpayers).

With effect from 2007, SARS income tax returns moved over to an electronic filing system, where

the redesigned income tax return made no distinction as to whether a taxpayer was resident or

not for tax purposes. Also, there was no part to disclose to SARS the fact that they ceased to be

a resident during any year of assessment (Observation of researcher: no formal reference).

When SARS released the new template for the completion of the income tax return for the 2018

year of assessment, they introduced a new question in the ‘form creation’ wizard, which asks

‘mark with an “X” if you ceased to be a resident of the RSA during this year of assessment’. This

question now allows a taxpayer to declare the change in their residency status to SARS. However,

where a taxpayer ceased to be a resident for tax purposes before this date, SARS did not request

any disclosure of this fact from the taxpayer. Consequently, section 9H of the Income Tax Act

may or may not be correctly implemented by SARS for a taxpayer who broke tax residency

(Observation of researcher: no formal reference).

Should you break tax residency during the 2019 year of assessment, when completing your 2019

income tax return the wizard for the return will include a ‘tick box’ to be selected, for a taxpayer

to disclose that they ceased to regard themselves as a tax resident of South Africa during the

year of assessment (SARS, 2019a). This question only appears in the wizard when creating the

form but not on the printed form or saved and submitted income tax return once filed with SARS.

From practical experience, currently, once the income tax return is submitted to SARS, it is

automatically selected for manual intervention by SARS, where personal intervention takes place.

In some cases a SARS official will then further investigate the taxpayer asking for confirmation of

the assets and liabilities at the time that the taxpayer ceases to be a resident and that they

complied with the requirements of section 9H of the Income Tax Act and paid the relevant taxes

to SARS (Researchers own observation).

34

In terms of the Comprehensive Guide to the ITR12 Return for Individuals published by SARS in

respect of the 2019 year of assessment (SARS, 2019a: 10):

A person will not be regarded as a resident when:

A person is outside South Africa for a period of 330 full continuous days

immediately after the day on which he ceases to be physically present in South

Africa, if a person was a resident in terms of the physical presence test.

A person is deemed to be exclusively a resident of another country for purposes

of the application of any agreement entered into between the government of South

Africa and the government of the other country for the avoidance of double

taxation.

Where the guide is silent, is where a person is ordinarily resident in a country other than South

Africa. As discussed below in 2.6.2, before applying a DTA to determine whether a taxpayer is

exclusively resident in another country, one would still need to refer to our domestic legislation,

not referenced in this SARS guide.

2.6.1.1.2 Two years of assessment in a 12-month period

With the amendments of section 9H(2)(b) and (c) of the Income Tax Act in 2012, where a taxpayer

ceases to be a resident for tax purposes, their year of assessment is deemed to have ended on

the date immediately before ceasing to be a tax resident with a new year of assessment beginning

the following day (SARS, 1962). A taxpayer now has two years of assessment in a 12-month

period.

Section 1 of the Income Tax Act defines a ‘year of assessment’ to be ‘any year or other period in

respect of which any tax or duty leviable under this Act is chargeable, and any reference in this

Act to any year of assessment ending the last or the twenty-eighth or the twenty-ninth day of

February’ (South Africa, 1962). From a compliance perspective, SARS has not addressed the

concept of a taxpayer having two years of assessment when a taxpayer files their income tax

return with SARS in the year that they cease to be resident. A taxpayer, whether resident or non-

resident still only files one income tax return on an annual basis.

When a person with a registered e-filing profile, requests a current or previous income tax return

to be issued, only one return will be issued. The SARS e-filing only allows the request for a future

year’s income tax return under the following circumstances:

35

The taxpayer is a deceased estate;

The taxpayer is an insolvent estate;

The taxpayer is emigrating.

Practically, however, if a future tax return was requested for completion and submission before

the filing season for that year, there is only one opportunity to complete the income tax return.

This will, however, only apply to taxpayers who cease to earn any source income from South

Africa after their date of emigration. Where a taxpayer continues to earn income from a South

African source after ceasing to be a tax resident, they will still be obligated to file an income tax

return with SARS.

It is, therefore, practice to continue to submit an annual income tax return covering the period

1 March in one year to 28/29 February in the next year on the following basis:

For the period 1 March up until the last date of being a tax resident:

Include the taxpayer’s worldwide income up until the date of emigration

Include any deemed disposals on worldwide assets

From the first day of being a non-resident up until 28/29 February:

Include income earned from a South African source only

As only one income tax return can be submitted to SARS representing a 12-month year of

assessment, the taxpayer is allowed his/her full annual rebate in the year in which the taxpayer

departs.

Section 6(4) of the Income Tax Act, concerns the rebate available to a natural person on an

annual basis. However, it states that – ‘[w]here the period assessed is less than 12 months, the

amount to be allowed by way of a rebate under subsection (2) shall be such amount as bears to

the full amount of such rebate, the same ratio as the period assessed bears to 12 months’. Up

until recently, where a taxpayer in respect of the 2018 or 2019 income tax return disclosed to

SARS that they ceased to be resident, they still received the full 12-month year of assessment

ending 28/29 February.

In a recent case where an income tax return submitted on behalf of a taxpayer X, SARS assessed

an individual taxpayer who broke tax residency part way through the regular 2019 year of

assessment, taxing him on the full year’s taxable income disclosed on the tax return. However,

SARS apportioned the rebate in terms of section 6(4) of the Income Tax Act only allowing taxpayer

X the rebate up until the date that they ceased to be a tax resident in South Africa. This may

36

indicate that the SARS e-filing procedures acknowledge that a taxpayer has two years of

assessment in the year in which he leaves South Africa. It does not, however, cater for how that

taxpayer accounts for the ‘second assessment’ for that year, and how this would be submitted to

SARS, should the taxpayer continue to earn source income after ceasing to be tax resident in

South Africa. In a subsequent income tax return submission for another taxpayer Y, SARS

allowed the full rebate and assessed taxpayer Y on all the taxable income completed on the

return.

Other than a ‘tick box’ declaring the termination of residency, there is only a section in ‘The

Comprehensive Guide to the Income Tax Return for Individuals’ published by SARS dealing with

the question of residency on the current income tax return link to the foreign employment

exemption (SARS, 2019a: 56). As per the guide –

This section of the return will only display for the 2016 year of assessment and prior

years. If amounts are completed for ‘Exempt Amount i.t.o. Section 10(1)(o)’ and/or

‘Amount taxed on IRP5 but comply with exemption i.t.o. Section 10(1)(o)(ii)’ (source

code 4041), then it is mandatory to complete this section of the return.

‘Are you a SA resident as defined in the Income Tax Act?’ (Select ‘Y’ or ‘N’)

If ‘Y’ has been selected for the SA resident question, state the number of days you

were outside of the RSA for:

o This year of assessment – ‘year’ and ‘number of days’ must be completed

o The previous year of assessment – ‘year’ and ‘number of days’ must be completed.

‘Did you within the period indicated above spend at least 60 days continuously

outside the RSA?’ (Select ‘Y’ or ‘N’).

Insert the following amounts:

o ‘Amount received and/or accrued in respect of foreign services rendered’ in RSA

currency.

o ‘Amount exempt’ in RSA currency.

‘If you are not a SA resident as defined in the Income Tax Act, please state the

country of tax residency’

‘Please state the number of days present in South Africa’ by completing the following

for the current year of assessment and the 5 previous years:

o ‘Tax period from’

o ‘Tax period to’

o ‘Number of days’

37

From practical experience, as at 21 September 2019, although this section is in the guide, the e-

filing wizard does not populate the return with these questions when completing the foreign

employment exemption section of the return. The return does, however, print these questions,

but currently, there is no way to access these questions when completing and submitting the

return to SARS (Researcher’s observation).

2.6.1.1.3 Income earned from a South African source

In terms of the definition of ‘gross income” in the Income Tax Act, once you have ceased to be a

tax resident for tax purposes in South Africa, you are only subject to tax on income from a South

African source. Section 10(1)(h) of the Income Tax Act will also result in most types of interest

income earned from a South African source being exempt from income tax. In terms of paragraph

2(b) of the Eighth Schedule to the Income Tax Act, a non-resident is also only subject to CGT on

immovable property situated in the Republic, or an interest in immovable property situated in

South Africa (South Africa, 1962).

In terms of government gazette Notice 39575 number 1 of 2016 promulgated on 6 January 2016,

any registered banks and financial institutions, amongst others are required to provide SARS with

third party details. These details relate to ‘amounts paid, due and payable, or received in respect

of, or by way of any investment, rental of immovable property, interest or royalty; transactions that

are recorded in an account maintained for another person’ to SARS with effect from 1 March 2015

(SARS, 2016).

At present, SARS does not track the residency status of a taxpayer in South Africa. From a

practical perspective, should a non-resident taxpayer receive investment income in South Africa,

such income is reported to SARS on an annual basis as a result of the abovementioned notice.

When completing his income tax return, a taxpayer then discloses such income as exempt income

from a South African source. In practice, SARS systems generally treat all taxpayers as resident

as no distinction can be made on the income tax return as to what the taxpayer’s residency status

is. During the verification process at SARS, once a tax return has been submitted, SARS raises

additional assessments including the investment income as taxable income, which would only be

taxable if the taxpayer is a resident for tax purposes in South Africa (Researcher’s observation).

The above treatment will result in the taxpayer needing to lodge a dispute with SARS in order to

confirm their residency status.

38

2.6.1.1.4 Taxes due to SARS in respect of the exit charge

Subject to various exclusions, in relation to a natural person, a provisional taxpayer is defined in

paragraph 1(a)(ii) of the Fourth Schedule to the Income Tax Act as: ‘any person (other than a

company) who derives income by way of any amount which does not constitute remuneration or

an allowance or advance contemplated in section 8 (1)’.

As per section 9H(b) of the Income Tax Act, the year of assessment of a taxpayer will be deemed

to have ended on the date immediately before the day on which that person so ceased to be a

resident’ triggering a CGT event due to the deemed disposal of his worldwide assets resulting in

tax being payable to SARS.

In terms of paragraph 21(1)(b) of the Fourth Schedule to the Income Tax Act, a payment of

provisional tax shall be paid ‘ no later than the last day of the year of assessment in question, an

amount equal to the total estimated liability of such taxpayer… of that year’. Section 9H, therefore,

triggers CGT to be paid to SARS earlier that the conventional date of 28/29 February, being the

end of a ‘normal’ year of assessment for a resident who is not ceasing to be resident (South

Africa,1962).

Should a taxpayer have an extensive portfolio of worldwide assets subject to the exit charge in

terms of 9H of the Income Tax Act, other than immovable property or a right to immovable property

in South Africa, he/she must make a provisional tax payment and submit a provisional tax return

to SARS.

In terms of paragraph 2(2)(a) of the Eighth Schedule to the Income Tax Act, in the case of an

taxpayer other than a company, an interest in immovable property in South Africa includes -

any equity shares held by a person in a company or ownership or the right to

ownership of a person in any other entity or a vested interest of a person in any

assets of any trust, if 80 per cent or more of the market value of those equity shares,

ownership or right to ownership or vested interest, as the case may be, at the time

of disposal thereof is attributable directly or indirectly to immovable property held.

In terms of paragraph 21(1)(b) of the Fourth Schedule to the Income Tax Act states that:

provisional tax shall be paid by every provisional taxpayer (other than a company) in

the following manner, namely …. not later than the last day of the year of assessment

in question, an amount equal to the total estimated liability of such taxpayer (as finally

determined in accordance with paragraph 17) for normal tax in respect of that year.

https://www.mylexisnexis.co.za/Library/IframeContent.aspx?dpath=zb/jilc/kilc/alrg/ulrg/0ds6c/xq9kf&ismultiview=False&caAu=#g1m60

39

When ceasing to be a resident for tax purposes, the taxpayer must obtain market valuations of

their worldwide assets on the date before they intend to cease to be a resident. These valuations

assist in determining the provisional tax payment required on the date immediately before the

date that they break tax residency. This provisional payment would be made by way of a second

provisional tax payment to SARS, as the year-end of the taxpayer will be brought forward to the

date on which they ceased to be a resident of South Africa for tax purposes.

The taxpayer will then, if still registered as a taxpayer during the ‘second’ year of assessment

(commencing on the date on which the taxpayer regards himself as a non-resident for tax

purposes), be liable for a further second provisional tax payment to SARS at the 28/29 February

of that year. This would only be applicable where the taxpayer still receives income from a South

African source that attracts tax in South Africa.

Should the ‘exit charge’ requiring payment per section 9H of the Income Tax Act not be paid to

SARS as a provisional tax payment on the date immediately before ceasing to be tax resident,

the taxpayer may be liable for underestimation penalties in terms of paragraph 20 of the Fourth

Schedule to the Income Tax Act of up to 20 per cent (SARS, 1962). This may result in a voluntary

disclosure application requiring submission to SARS in terms of section 226 of the Tax

Administration Act (28 of 2011) (South Africa, 2011a).

From a practical perspective, a taxpayer still only files one income tax return to SARS, and

effectively is only obligated to make one provisional tax payment to SARS six months after the

commencement of the year of assessment and the other on the last day of that year of

assessment (usually 12 months). The compliance aspect becomes a bit more complicated, as in

some cases a taxpayer could make a second provisional tax payment on 15 April of one year,

after breaking residency, before filing a first provisional tax payment. It is also not always practical

to obtain valuations of assets and pay the taxes to SARS at the same time as a taxpayer’s

intention to break tax residency occurs. The taxpayer is also required to have sufficient cash flow

to make a payment to SARS which may prove problematic due to the exit charge primarily based

on foreign immovable property not disposed of at the time.

2.6.2 Ceasing to be tax resident in terms of the ordinarily residence test

For this test, as set out in 2.2.1 above, when determining whether a taxpayer is no longer ordinarily

resident in South Africa, it needs to be motivated that the taxpayer is ordinarily resident in a

country other than South Africa. There is no direct reference in the South African income tax

legislation to be regarded as not ordinarily resident, but this would mean that the individual in

question would not meet the definition of resident as set out in section 1 of the Income Tax Act

40

(58 of 1962) (South Africa, 1962). This would again be dependent on the facts and circumstances

surrounding that taxpayer’s departure from South Africa, including their intentions.

As seen from the above discussions determining whether a person is ordinarily resident is

complex, and will change depending on the facts and circumstances of the taxpayer. This is the

primary test that needs to be applied.

As there are two residency tests for tax in South Africa, where a taxpayer ceased to be ordinarily

resident in South Africa, they must remain physically outside South Africa to avoid becoming

resident again in terms of the physical presence test. If the taxpayer is physically present in South

Africa for more than 91 days in the year immediately following their departure from South Africa,

he will be regarded as a tax resident again in terms of the physical presence test.

As per the example in 2.6 above, if a taxpayer ceased to be a tax resident on 25 December 2018,

the taxpayer now have two years of assessment – one from 1 March 2018 to 24 December 2018

(being 299 days) and a new year of assessment from 25 December 2018 to 28 February 2019

(66 days). In applying the physical presence test to the above example, ‘year two’ would be the

first year in which the taxpayer was not tax resident in South Africa, if breaking residency on

25 December 2018, and ‘year two’ (being from 25 December 2018 on 28 February 2019) would

only have 66 days.

It is, therefore, not possible for the taxpayer to apply the physical presence test to the first year

after ceasing to be a resident in South Africa. For the physical presence test to apply to this

taxpayer in the future, he would only meet all the requirements of the test again in the 2025 year

of assessment. The first year, looking back, with more than 91 days in which he can be in South

Africa is the year ending 29 February 2020.

Table 2.1 below provides an example of where a taxpayer, breaking tax residency in terms of the

ordinarily resident test becoming tax resident again in South Africa in terms of the physical

presence test.

41

Table 2-1: Illustration of becoming resident in South African in terms of the

physical presence test after ceasing to be ordinarily tax resident

Source from information discussed before table (Researcher’s own complication)

In another example - where a taxpayer ceases to be a tax resident on 25 August 2018, the

taxpayer has one year of assessment beginning on 1 March 2018 and ending on 24 August 2018

(177 days) and another commences on 25 August 2018 and ending on 28 February 2019

(188 days). Assuming the taxpayer was physically present in South Africa for all 177 days until

the date of departure from South Africa, he should not return to South Africa for more than 91

days in his new second year of assessment (between 25 August 2019 and 28 February 2019). In

doing so, he would risk becoming a tax resident again in terms of the physical presence test.

Currently, one income tax return is filed to SARS in the year in which the taxpayer ceased to be

resident, and any exit tax would be due to SARS. For discussions in this regard, please see

2.6.1.1 above.

2.6.3 Ceasing to be tax resident in terms of the physical presence test

Following on from the criteria set out in 2.6.2 above, where a taxpayer who is not resident in South

Africa according to the ordinarily residence test spends sufficient time in South Africa he is a

resident of South Africa for tax purposes, even though he may be ordinarily resident in another

country.

Tax year Days spent in South Africa

Year 1 1 March 2018 to

24 December 2018

299 days (resident)

Taxpayer breaking tax residency on 25 December 2018

Year 2

Not applicable as < 91 days

25 December 2018 to 28 February 2019

66 days (ceased to be resident 25/12/2018)

First year of being a non-resident of South Africa in terms of the ordinarily resident test

Previous Year 5

2020 tax year >91 days

More than 915 days in total during these five

years

Previous Year 4


Previous Year 3


Previous Year 2


Previous Year 1


Current year 2025 tax year >91 days

42

In terms of the residency definition in section 1 of the Income Tax Act, if after becoming a tax

resident as a result of the physical presence test, that taxpayer leaves South Africa, and does not

return for a period of at least 330 full days, that taxpayer shall be deemed to have ceased to be a

resident from the day on which he/she ceased to be physically present in South Africa (South

Africa, 1962).

From the above discussion it is derived that a taxpayer who becomes resident in South Africa in

terms of the physical presence test, can cease to be resident based on the days he is absent from

South Africa after meeting the test.

Currently, one income tax return is filed to SARS in the year in which the taxpayer ceased to be

resident, and any exit tax would be due to SARS. For discussions in this regard, please see

2.6.1.1 above.

2.6.4 Ceasing to be a tax resident in terms of a DTA

As discussed in 2.3 above, it is possible to be ordinarily resident for tax in South Africa but cease

to be a tax resident as a result of the application of a DTA. Where a taxpayer moves to another

country for a temporary period to investigate work opportunities, his presence in that other country

may denote he is regarded as a tax resident there in terms of that other country’s domestic

legislation.

In order to illustrate the application of the DTA between South Africa and other countries, the

article addressing residency, the UK and the USA have been selected as they illustrate different

domestic residency rules to those of South Africa.

In terms of the rules of the UK, a person is automatically regarded as a resident if they spend 183

days or more in the UK in the tax year or their only home was in the UK (owned by the taxpayer,

rented or lived in for at least 91 days in total and the taxpayer spent more than 30 days there in

the tax year) (UK, 2019).

In terms of the rules of the USA, an individual is regarded as a resident for tax purposes when

admitted into the country under the immigration laws – being the green card test, and the other a

substantial presence test involving a formula based on the number of days present in the USA

(IRS, 2019).

Where a taxpayer is found to be resident in two counties who have signed a DTA in terms of the

residency definition in the DTA, the tie-breaker rules need to be applied to determine in which

43

country the taxpayer is ‘more’ or ‘exclusively’ resident. Please see a discussion concerning the

tie-breaker rules in 2.3.2 above.

Currently, one income tax return is to be filed to SARS in the year in which the taxpayer ceased

to be resident, and any exit tax would be due to SARS. For discussions in this regard, please see

2.6.1.1 above.

2.7 Ceasing to be a resident for exchange control

According to the definitions of resident and non-resident explained in 2.4.2 above, a person could

be domiciled in South Africa, but have their normal place of residence in a country other than

South Africa – making them a non-resident for exchange control purposes. Special rules apply to

natural persons who initially met the definition of a resident for exchange control purposes, who

relocate to a country other than South Africa. They either need to formalise their emigration, via

an application to the SARB, or they will be regarded as a resident temporarily living abroad (Olivier

& Honiball, 2011:720).

In an article on Businesstech.co.za, Jonty Leon, a manager at Financial Emigration, commented

that a financial emigration is regularly confused with a formal emigration. The latter does not

always require that a person ceases to be tax resident. The various residency rules need to be

taken into account to determine whether a person can, in fact, formalise their emigration from

either tax or exchange control perspective or both (Leon, 2019).

In terms of the definition set out in A.1 of the Exchange Control Manual (SARB, 2019b: 15, 18) –

An emigrant ‘means a South African resident who is leaving or has left South Africa

to take up permanent residence or has been granted permanent residence in any

country outside the Common Monetary Area (CMA).

A ‘resident temporarily abroad’ means any resident who has departed from South

Africa to any country outside the CMA with no intention of taking up residence or

who has not been granted permanent residence in another country, excluding those

residents who are abroad on holiday or business travel.

To financially emigrate from South Africa, that is cease to be resident for exchange control

purposes, there must be an application made to the SARB. Once SARS has adjudicated the

application, the applicant is an emigrant, per the definition above (SARB, 2019b: 78).

The main prerequisite required by an applicant to submit an application to the SARB for a financial

emigration is that the applicant must have permission to reside in a country outside of South Africa

44

permanently. The Authorised Dealer must be satisfied with the documentary evidence provided

that the applicant has permission, and is permanently relinquishing their South African domicile

(SARB, 2019b:78).

The applicant will also be required to provide the SARB with a signed application form MP336(b)

reflecting the market value of each asset and/or liability held in the CMA at the time of emigration.

Another requirement for the application to be submitted to the SARB is that a tax clearance

certificate is obtained from SARS confirming that the applicant has no outstanding taxes and that

he is tax compliant (SARB, 2019b:73).

2.7.1 Tax clearance application

This tax clearance required from SARS is not the same tax clearance applied for a natural person

to remit their annual R10 million foreign capital allowance that is available to all exchange control

residents during a calendar year. Depending on the remaining assets held by the taxpayer,

various supporting documentation is required to support the tax clearance (SARS, 2019d). The

only circumstances where a tax clearance will not be required is where the applicant(s) have

resided permanently outside of South Africa for more than a period of five years, and there are

no remaining assets other than an inheritance or insurance policy (SARB, 2019b:79).

This application requires the taxpayer to provide SARS with a copy of the application form

(MP336(b)) submitted to the Authorised Dealer, as mentioned in 2.7 above. In addition to this

document, SARS requires all supporting documentation for the assets declared on the application

form.

From a practical perspective, a person does not need to be a tax resident of South Africa to obtain

such a tax clearance. When the taxpayer has ceased to be a tax resident of South Africa with an

inactive tax number, the income tax reference number will need to be reactivated in order for the

taxpayer to apply for a tax clearance certificate if it is required by the SARB.

As part of the emigration application, if the applicant wishes to remit an amount in excess of

R10 million offshore, or has already exceeded his foreign capital allowance for the year, SARS

triggers a new process. This added process takes the form of a ‘health check’ where SARS

undertake a more intensive check concerning the assets declared on the emigration application,

to ensure that all taxes due to SARS are paid. This process can take a few months to be finalised.

This is a practice of SARS but it is not documented in any South African legislation.

It is current SARS practice that this additional review process only takes place when the applicant

wishes to remit an amount of over R10 million abroad. If the amount is less than this, then as long

45

as the supporting documentation meets with the approval of the SARS official adjudicating the

tax clearance application, the clearance could be issued within a few days or weeks.

This process is currently not the same as that followed by SARS when notified of a taxpayer

ceasing to be resident, as discussed in 2.6 above. A similar ‘health check’ is sometimes, however,

conducted on a taxpayer with a large asset base still in South Africa.

The tax clearance certificate is obtained on e-filing in terms of section 256 of the Tax

Administration Act (South Africa, 2011a). In terms of section 256(2), SARS must issue or decline

a tax clearance certificate within 21 business days.

In practice, however, when a taxpayer’s application is referred for additional verification, it is

regarded as an audit. It can take as long as six months to a year to be finalised.

As set out in 2.4.1 above, not formalising an emigration for exchange control purposes will result

in a person still being subjected to exchange control restrictions. This would include what a

resident can invest abroad, and what assets can be retained abroad and re-invested back into

South Africa. As mentioned above, should an individual not finalise their emigration via the SARB,

that person will be regarded as a resident temporarily living abroad. Should that individual then

reinvest into South Africa, via an offshore structure that person will be in contravention of

regulation 10(1)(c) of the Exchange Control Regulations. Should a person receive a foreign

inheritance from an offshore source or a distribution from a non-resident trust, that person should

report it to the SARB.

2.8 Ceasing to be a permanent resident

In terms of section 6 of the South African Citizenship Act (88 of 1995), a person must apply to the

Minister to retain his or her citizenship, before acquiring citizenship or nationality of another

country (South Africa, 1995). Permission to retain their South African citizenship shall then be

granted by the Minister should he or she deem it fit. Should a person take the necessary steps to

retain their South African citizenship when obtaining nationality or citizenship in another country,

they can, retain their South African citizenship and have permission to permanently reside in

South Africa indefinitely, even though they are no longer regarded as a tax resident, as set out in

2.6 above.

2.9 Conclusion

In this chapter the secondary objectives set out in 1.6.2 above, of critically analysing who meets

the requirements of a resident in South Africa has been achieved, namely a detailed discussion

46

was set out the requirements of becoming a resident for income tax, exchange control and home

affairs. A further analysis then discussed the requirements and implications of ceasing to be

resident.

Addressing residency in South Africa is complex and requires the examination of three different

definitions of residency that are mutually exclusive of each other. One definition of residency may,

however, affect another residency definition.

Since South African income tax legislation introduced the concept of residency in 2001, the

income tax legislation has been amended and expanded to cover the complexities of the change

of a taxpayer’s residency status. From a practical perspective, SARS has not followed through

with practical ways to monitor and account for the tax of a person ceasing to be a resident for tax

purposes, taking all variables into account, such as the break in the tax year of assessment.

Although SARS and the SARB are independent bodies, there is a lot more emphasis when a

person ceased to be resident from an exchange control perspective for a comprehensive cross-

referencing system with SARS. This is to ensure any undeclared income and outstanding taxes

are paid and accounted for before an exchange control resident leaves South Africa, whether he

breaks tax residency or not (see 2.6).

The application for the above residency definitions is not straight forward, and various factors

need to be taken into account when applying the tax residency tests set out by SARS, in

conjunction with the SARB requirements to proceed with a financial emigration (see 2.6).

2.9.1 Income Tax

Although SARS implemented detailed legislation relating to the exit charge payable when ceasing

to be tax resident, in practice, they have not issued a guide or an explanation as to how to

calculate the CGT due to SARS. Bringing the tax year to an end at the time that a natural person

ceases to be a resident for tax purposes is not clear, as well as calculating and paying the tax

before ceasing to be resident. The individual rebate for each year of assessment should also be

adjusted. SARS does not essentially follow the legislation set out with regards to residency, and

there is no clear guidance to tax practitioners detailing the process (see 2.6.1).

In terms of tax legislation, section 9H of the Income Tax Act sets out the division made between

two distinct tax years. Having two distinct years of assessment, however, is not catered for by the

SARS electronic e-filing system where only one income tax return is to be completed covering

the tax year between 1 March to 28/29 February 2019 each year. The apportionment of the annual

rebate available to each taxpayer in terms of section 6 of the Income Tax Act, is not accounted

for on assessment (see 2.6.1.1.2).

47

Allowing an ‘emigrant’ to file an income tax return up until the date of departure, has been

available on the SARS e-filing system since the start of e-filing in 2007. This does however not

cater for a taxpayer who continues to earn income from a South African source after his/her

departure from South Africa (see 2.6.1.1.1).

2.9.2 Permanent residency and citizenship

Should a person leave South Africa permanently to live elsewhere, they can still retain their

permanent residency and citizenship in South Africa. Should citizenship be sought in a country

outside of South Africa, permission and approval does need to be obtained from the South African

Department of Home Affairs. If not, that person’s citizenship can be revoked (see 2.8) (South

Africa, 1995).

2.9.3 Exchange control

The fact that a person decides to leave South Africa permanently, does not necessarily result in

a formal application being required to be made to the SARB. In some cases, without the correct

permission obtained from the country to which that person is relocating, the person may not be

able to provide the SARB with the correct proof that they have permission to permanently reside

abroad, to formalise an emigration. The SARB and SARS are two independent bodies, one

controlled by the government of South Africa and the other privately owned. Therefore, ceasing

to be resident for tax and exchange control are two independent processes that are not aligned

with each other and both are not always necessary. Although being required to present a tax

clearance to the SARB as part of an emigration, this need not have an impact on your residency

SARS (see 2.7).

See the table below with a summary of the relevant issues affecting tax and other residency

definitions discussed in this chapter.

In the next chapter a comparison will be undertaken comparing the above regulations set out by

the South African authorities is paralleled with those of India and Russia. A conclusion can then

be drawn based on the different regulations and laws surrounding residency in those countries,

to determine whether South Africa has adequate regulations in place in relation to residency in

comparative to these two other countries.

48

2.9.4 Summary table

Table 2-2: Summary of residency

Becoming a resident Ceasing to be a resident

Domestic legislation – ordinarily resident test

Look at the intention of the taxpayer

Facts and circumstances relating to the centre of social & economic ties

International case law (see 2.2.1)

Look at the intention of a taxpayer

Facts and circumstances relating to the centre of social and economic ties

International case law (see 2.6.2)

Domestic legislation - physical presence test

Time test applied over 6-years depending on days physically in South Africa

ALL the following must apply:

> 91 days in current year

> 91 days in each of previous 5 years

> 915 days in aggregate previous 5 years (see 2.2.2)

On becoming resident in terms of this test, if leave South Africa and remain outside South Africa for more than 330 full days immediately after ceasing to be physically present in terms of the prescribed time test – no longer resident (see 2.6.3)

DTA application Look at domestic residency definitions in

each country then apply Article 4 of DTA to determine where exclusively resident (see 2.3.1)

Look at domestic residency definitions in each country then apply Article 4 of DTA to determine where exclusively resident (see 2.3.1)

Becoming/ ceasing tax resident

Deemed to have acquired worldwide assets on becoming tax resident (see 2.6.1)

Deemed to have disposed of worldwide assets (other than South African immovable property or an interest in immovable property) (see 2.6.1)

Practical implications

Register as a taxpayer and notify SARS of change in residency status

Declare worldwide income to SARS (see 2.6.1)

Notify SARS of change in residency

Exit tax based on worldwide assets

Only declare South African source income post ceasing to be resident (see 2.6.1.1)

SARS practice vs Income Tax Act

SARS systems do not align with income tax legislation

From the implementation of e-filing in 2007 up until the release of 2018 template to complete an income tax return, no record kept by SARS of the residency status of a taxpayer. (see 2.6.1.1)

From the start of e-filing in 2007 until 2018 - income tax return template did not record residency status

No place to advise SARS of ceasing to be resident until 2018

SARS only produce one income tax return when ceasing to be tax resident.

(see 2.6.1.1)

Exchange control

When taking up permanent residency/ domicile in South Africa - generally be regarded as a resident.

Must declare status as an immigrant or foreign national to bank on entering South Africa when opening a bank account. (see 2.4.2)

If resident > five years – can leave the country without formalising emigration –as a resident living temporarily abroad.

If placing emigration on record, need permanent residency in another country and must submit an application to SARB.

Require a tax clearance depending on remaining assets. (see 2.7)

Migration laws/ permanent residency and citizenship

To apply for permanent residency will need to qualify in terms of requirements of the Department of Home Affairs

Applying for citizenship is optional but can be done once obtaining permanent residency (see 2.5)

No obligation to give up citizenship or permanent residency

If dual citizenship, need to request permission from the Department of Home Affairs before making an application to another country for residency (see 2.8)

(Researchers own complication)

49

CHAPTER 3 – A COMPARISON

3.1 Introduction

Following on from the discussion of the current meaning of the definition of residency according

to the Income Tax Act, exchange control guidelines and domestic residency, a comparative study

will now be done in order to examine the definitions of residency defined in two other countries,

namely India and Russia. As per the secondary objectives set out in 1.6.2 above, this chapter will

review the impact of breaking tax residency in South Africa addressed in Chapter 2, making a

comparison with Russian and Indian legislation.

This chapter will look at a comparison between the tax laws in South Africa, India and Russia and

the impact of breaking of tax residency. Both India and Russia, as well as being part of the BRICS

countries have a high level of migrants leaving the country to seek work elsewhere (UN, 2017).

Jim O’Neil created the acronym BRIC during his time at Goldman Sachs in 2001 to represent a

group of countries projected to be the leaders in world economic growth, namely - Brazil, Russia,

India and China. However, omitting an African country from this grouping might appear to regard

Africa’s participation as immaterial to the world economic growth, and South Africa was added as

the ‘S’ in the acronym in 2010 (The Economist, 2013).

In addition to the three chosen countries being part of the BRICS, Russia and India are also seen

to have a large migrant population which is evident in the International Migration Report published

by the UN in 2017 (UN, 2017). Emigration occurs when a person leaves one country to

permanently take up residency in another. The reasons why a person wishes to emigrate can

vary due to several individual motivating factors, depending on the employment, socioeconomic,

political and personal circumstances of an individual, among others.

All three countries also have Exchange Control Regulations set up to protect their economies

regulated by the Central Banks in their respective countries. The three countries are similar in

many respects needing to monitor their income tax, exchange control and border control in

relation to taxpayers leaving the country and would combine well in a comparative study to

compare similarities and differences in practice which could lead to possible recommendations

as to whether the residency provisions in South Africa should change.

50

3.2 Tax residency in India

3.2.1 Domestic tax legislation

Where an individual taxpayer is regarded as resident and ordinarily resident, they are subject to

tax on their worldwide income, subject to the application of a DTA. A taxpayer who is not ordinarily

resident only pays tax in India where they derive business income or income deemed to have

been derived from a source within India. An individual resident taxpayer is currently taxed at a

progressive rate that peak at 30%. Where a resident individual derives income of more than

INR 5 million or INR 10 million, an addition surcharge of 10% or 15% respectively is added. A

resident qualifies for a rebate up to INR 12,500 where their taxable income of less than

INR 500,000, and there are a larger rebate of INR 300,000 and INR 500,000 for senior citizens

over the age of 60 and 80 years (Deloitte, 2019a: 6).

In terms of section 5 of the Indian Income Tax Act (India, 1961) (hereinafter referred to as the

Indian Income Tax Act), the taxable income of a person who is a resident of India will include

income from a worldwide source. Where that person is, however, not ordinarily resident in India

in terms of section 6, only the income from an Indian source will be included in their income. A

non-resident, on the other hand, will be taxed only on income received or deemed to be received

in India or that accrues or arises or is deemed to accrue or arise in India (India, 1961). This is

quite similar to the residency definition used in South African income tax legislation in determining

whether a person is ordinarily resident (South Africa, 1962).

In terms of domestic legislation and as discussed in the income tax summary of India as published

by KPMG in May 2019, India makes a distinction between a person who is non-resident, a person

who is ordinarily resident and a person who is resident but not ordinarily resident in India. India

also integrates the concept of a communal family unit as part of its definition of residency (KPMG,

2019).

In the context of a natural person, a tax resident of India is defined in section 6(1) of the Indian

Income Tax Act (India, 1961) as a person -

Who is physically present in India for a period or periods equalling at least 182 days or

more; or

Who is physically present in India for more than 60 days during a tax year, and

That person has been physically present in India in aggregate for more than 365 days

during the previous preceding four years of assessment.

51

A person who is a tax resident in India is then further classified as either a resident who is

ordinarily resident or a resident who is not ordinarily resident. Section 6(6) of the Indian Income

Tax Act addresses this distinction, where a person who qualifies as a resident in terms of the

above may not be regarded as ordinarily resident in India. This would be someone who -

Has not been a resident in India for nine out of the previous ten years of assessment, or

Has during the previous seven years of assessment been physically present in India

during the previous seven years of assessment for 729 days or less.

Based on the above, if you are a non-resident entering India for the first time, you should remain

a non-resident of India should your stay not be more than 181 days during that tax year for the

first two to three years (KPMG, 2019).

What is not similar to South African tax legislation is the concept of a ‘Hindu undivided family’

(‘HUF’). In the Hindu community it is common for an extended family, with one common ancestor

to live together and collectively pool their income and assets with one head of the family who

makes the ultimate decisions for that household from an economic and social perspective

(Sharma, 2018).

A definition of a HUF is a person in the Indian Income Tax Act and, in terms of section 6, who is

regarded as a resident of India unless the control and management of the HUF’s affairs are mainly

located outside of India (India, 1961).

3.2.2 Ceasing to be tax resident

Should a taxpayer leave India on a permanent basis, in terms of the definition of a resident as set

out in section 6(1) of the Indian Income Tax Act and discussed in 3.2.1 above, where

A taxpayer remains outside of India for a period of at least 182 days; or

A taxpayer is not physically present in India for more than 60 days during the year; and

A taxpayer has not been present in India for more than 365 days in the four preceding

years.

In this case, that taxpayer does not meet the definition of a tax resident and therefore is regarded

as a non-resident of India for tax purposes. The taxpayer will not pay tax on their worldwide

income as per section 5 of the Indian Income Tax Act (India, 1961).

Should a taxpayer be a ‘temporary’ visitor to India with a domicile outside of India in terms of

section 230(1) of the Indian Income Tax Act, subject to any specific exceptions, that taxpayer is

required to apply to the Indian tax authorities for a ‘no objection certificate’ to leave India. The

52

completion and submission of Form 30A to the tax authorities will confirm that any taxes due to

the Indian tax authorities, in respect of income earned while in India, have been paid (India, 1961).

Section 230(1) of the Indian Income Tax Act (India, 1961) states that -

no person,—

(a) who is not domiciled in India;

(b) who has come to India in connection with business, profession or

employment; and

(c) who has income derived from any source in India,

shall leave the territory of India by land, sea or air unless he furnishes to such

authority as may be prescribed—

(i) an undertaking in the prescribed form from his employer; or

(ii) through whom such person is in receipt of the income,

to the effect that tax payable by such person who is not domiciled in India shall

be paid by the employer referred to in clause (i) or the person referred to in

clause (ii), and the prescribed authority shall, on receipt of the undertaking,

immediately give to such person a no objection certificate, for leaving India:

Provided that nothing contained in sub-section (1) shall apply to a person who

is not domiciled in India but visits India as a foreign tourist or for any other

purpose not connected with business, profession or employment.

If a person has his domicile in India and who wishes to leave India for an indefinite period, in

terms of section 230(1A) of the Indian Income Tax Act, they must provide a certificate of

compliance to the Indian tax authorities detailing the purpose of the visit and the estimated period

of the stay. This person will be required to complete a form 30C for submission to the tax

authorities. The Indian tax authorities need to be satisfied that all tax obligations in India are

settled before a clearance certificate will be issued (India, 1961).

India, does not as yet have a structured policy with regards to ceasing to be tax resident, other

than the above clearance certificates. A person’s residence is determined on an annual basis,

where the rules set out in the residency definition detailed in 3.2.1 above will need to be applied.

If a person is regarded as being a resident, depending on their circumstances, they will be treated

as such by the tax authorities (India, 1961).

In an article published by Quartz India, a comment was made that India’s Central Board of Direct

Taxes (‘CBDT’), who are able to influence the Finance Ministry in matters affecting income tax

53

policies in India, formed a team to work on a set of rules that results in those leaving the country

paying an exit charge. The reason for this decision was due to a large number of wealthy

individuals leaving the country, impacting the revenue collection in India. In this article, Jiger

Saiya, a tax partner at BDO used Canada as an example, where the Canadian tax authorities

imposed a deemed disposal of all property by a Canadian resident leaving Canada. This exit tax

adopted is comparable to that adopted in a similar situation by SARS (Iyer, 2018).

A further article published by The Economic Times in December 2018, also referred to the CBDT

setting up a work group and mentioned that Indian tax authorities now have access to a large

amount of data concerning investments by Indian residents outside of India, due to the AEOI now

required by financial institutions. Currently, 85 countries worldwide have entered into an exchange

of information agreement that reports the financial information of investors to the revenue office

in the country of residence of the ultimate beneficial owner (Kably, 2018).

As of 25 April 2019, 105 countries have signed up to the Multilateral Competent Authority

Agreement on AEOI, including South Africa. As a result of this sharing arrangement, all the

participating countries now have an indication of information not disclosed on income tax returns

that previously was unknown. India signed this agreement agreeing to the exchange of

information in September 2017 (OECD, 2019).

3.2.3 Double Taxation Agreements

At present India has DTAs with 97 countries and limited agreements with eight (PwC, 2019). For

a resident of India to be exclusively resident in a country outside of India, a DTA needs to exist

between India and that other country, and Article 4 and the tie-breaker rules applied to determine

where the person would be exclusively resident for tax purposes.

Should a taxpayer be resident in India in terms of the definition in section 6 of the Indian Income

Tax Act, for them to apply a DTA, section 90A (4) of the Indian Income Tax requires the taxpayer

to produce a tax residency certificate, confirming residence in that other country. The Indian tax

authorities would then be satisfied that the taxpayer is exclusively a tax resident in a country

outside of India. In addition to the residency certificate, a form 10F needs completion by the

person providing the residency certificate (India, 1961).


All persons are required to obtain permission to enter India with a suitable visa with exception for

residents of Bhutan and Nepal who are exempt from having to obtain a visa to cross India’s

border. Citizenship is obtainable as a result of being born in India, having relatives in India,

54

marrying an Indian national or having parents who are citizens. Where no link to Indian heritage

can be motivated, if an applicant has lived in India for more than 11 of the last 14 years prior to

the application and for a continuous period of 12 months immediately before the application, an

individual can apply for naturalisation (Angloinfo, 2019).

Until 9 January 2015, a Persons of Indian Origin (PIO) card could be issued to individuals of

Indian descent holding a passport of another country (other than Pakistan, Bangladesh,

Afghanistan, Nepal, Bhutan, China and Sri Lanka). This card allowed a person to enter and exit

India without a visa and was valid for a period of up to 15 years. This card was useful to individuals

without Indian citizenship who previously held an Indian passport who have family in India and is

also extended to married Persons of Indian origin (PIO) (Angloinfo, 2019). With effect from

9 January 2015, however, in terms of Gazette of India (Part I, Section-I), all existing PIO card

holders are now Overseas Citizen of India (OCI) card holders and replaces the PIO card scheme

which is withdrawn. However, the PIO cards remained valid until 31 March 2019 (India, 2015).

A person holding an OCI card is able to apply for Indian citizenship if he/she has possession of

an OCI card for five years and has been ordinarily resident in India for twelve months. An OCI

card grants the cardholder an open ended visa to travel to India from another country and be

treated as a non-resident of India in respect of financial and economic matters (India, 2005).

Therefore, should a person remain in India for an extended period of time, they can obtain a

residency permit without having to obtain citizenship that will last for up to 15 years at a time.

3.2.5 Ceasing to be resident from a visa/citizenship perspective

As discussed in 3.2.2 above, when a foreigner leaves India permanently, that person is required

to obtain a tax clearance from the Indian revenue authorities confirming that the authorities have

no objection to their departure and their taxes have been paid.

In the case of a foreign employee who has been working in India for some years, where that

employee contributed to a provident fund as part of his employment contract in India the funds

can be withdrawn on retirement. In most cases the foreign employee can reclaim their provident

fund in this manner. This mainly applies to expatriates whose home country also has a social

security regime and India entered into social security agreements with that country. If this is not

the case, the employee must wait until they reach the age of 58, when they will then be entitled

to withdraw all their funds (Angloinfo, 2019).

Obtaining citizenship in a country outside of India will result in the citizenship in India being

cancelled as India does not permit a dual citizenship in its internal policy. In terms of article 9 of

Part II of the Constitution of India ‘‘no person shall be a citizen of India by virtue of article 5 or be

55

deemed to be a citizen of India by virtue of article 6 or article 8, if he has voluntarily acquired the

citizenship of any foreign State’ (India, 2007).

3.2.6 The emigration of Indian nationals for purposes of employment

As a result of a large number of Indian nationals, both skilled professional and unskilled workers

seeking work in other countries, the Indian Government enacted the Emigration Act of 1983. The

objective of this act was to protect and safeguard the interest of the Indian nationals seeking

employment abroad particularly on contract and to prevent exploitation in the host countries.

Indian nationals enrolling in an academic programme outside of India were included as part of

this Act (India, 1983).

As this act was specifically endorsed to protect a large number of migrants working in the Gulf

region, there were fundamental limitations. The conclusion was that a more updated framework

be legislated providing an efficient management system in relation to Indian emigration with a

more comprehensive methodology. Therefore, a draft bill was tabled in 2019 to replace the

Emigration Act with the new updated legislation. This legislation aims to encompass the overall

welfare and protection of emigration led by the Emigration Management Authority (‘EMA’) steered

by a Secretary level Officer from the Ministry of External Affairs (India, 2019). The Indian

government acknowledge their extensive numbers of emigrants and as a result have

implemented legislation to protect their wellbeing.


The Reserve Bank of India (RBI) was established in Calcutta on 1 April 1935 and their central

offices permanently relocated to Mumbai in 1937. Although initially privately owned, the bank was

nationalised in 1949 and is now wholly owned by the Government of India. As per the website of

the Reserve Bank, the essential function of the Reserve Bank is:

to regulate the issue of Bank notes and keeping of reserves with a view to securing

monetary stability in India and generally to operate the currency and credit system of

the country to its advantage; to have a modern monetary policy framework to meet

the challenge of an increasingly complex economy, to maintain price stability while

keeping in mind the objective of growth (RBI, 2019a).

In comparison, the SARB was created for the primary objective of retaining financial stability and

sustainable economic growth in the South African market. The SARB is, however not owned or

controlled by the South African government (SARB, 2019c).

56

Similar to the SARB Exchange Control Regulations of 1961, the Foreign Exchange Management

Act also sets out restrictions as to what a resident of India can or cannot do with foreign currency.

Section 2(v) of the Foreign Exchange Management Act defines a ‘person resident in India’ to

be –

(i) a person residing in India for more than one hundred and eighty-two days

during the course of the preceding financial year but does not include—

(A) a person who has gone out of India or who stays outside India, in

either case—

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside

India, or

(c) for any other purpose, in such circumstances as would

indicate his intention to stay outside India for an uncertain

period;

(B) a person who has come to or stays in India, in either case, otherwise

than—

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would

indicate his intention to stay in India for an uncertain period’

(India, 1999);

A ‘person resident outside India’ is then defined in paragraph (w) of Section 2 as ‘a person who

is not resident in India’ (India, 1999).

In terms of section 3 of the Foreign Exchange Management Act, transactions affecting the transfer

or dealing of any foreign exchange or foreign security require permission from the RBI (India,

1999).

As set out in section 2 of the Foreign Exchange Management Act the following definitions need

consideration:

57

Foreign currency means ‘any currency other than Indian currency’;

Foreign exchange means ‘foreign currency and includes,-

(i) deposits, credits and balances payable in any foreign currency,

(ii) drafts, travellers’ cheques, letters of credit or bills of exchange, expressed or drawn in

Indian currency but payable in any foreign currency,

(iii) drafts, travellers’ cheques, letters of credit or bills of exchange drawn by banks, institutions

or persons outside India, but payable in Indian currency;’

Foreign security means

any security, in the form of shares, stocks, bonds, debentures or any other instrument

denominated or expressed in foreign currency and includes securities expressed in

foreign currency, but where redemption or any form of return such as interest or

dividends is payable in Indian currency

Section 3 of the Foreign Exchange Management Act states that -

Save as otherwise provided in this Act, rules or regulations made thereunder, or with

the general or special permission of the Reserve Bank, no person shall—

(a) deal in or transfer any foreign exchange or foreign security to any

person not being an authorised person;

(b) make any payment to or for the credit of any person resident outside

India in any manner;

(c) receive otherwise (than) through an authorised person, any payment

by order or on behalf of any person resident outside India in any

manner;

Explanation.—For the purpose of this clause, where any person in, or

resident in, India receives any payment by order or on behalf of any

person resident outside India through any other person (including an

authorised person) without a corresponding inward remittance from

any place outside India, then, such person shall be deemed to have

received such payment otherwise than through an authorised person;

(d) enter into any financial transaction in India as consideration for or in

association with acquisition or creation or transfer of a right to acquire,

any asset outside India by any person.

Explanation.—For the purpose of this clause, financial transaction means

making any payment to, or for the credit of any person, or receiving any

58

payment for, by order or on behalf of any person, or drawing, issuing or

negotiating any bill of exchange or promissory note, or transferring any

security or acknowledging any debt.

Section 4, dealing with the holding of foreign exchange then goes on to state that ‘[s]ave as

otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or

transfer any foreign exchange, foreign security or any immovable property situated outside

India’.

As a ‘person resident in India’, based on the above, no foreign currency can leave India without

the permission of the Reserve Bank of India. As per the frequently asked questions published on

the Reserve Bank of India’s website, a resident Indian will not require permission from the

Reserve Bank to purchase foreign exchange in the following instances (RBI, 2019b) –

Private travel – use of up to USD 10,000 per calendar year for purposes of private travel;

Education – up to USD 30,000 or the estimate provided by the educational institution

abroad, whichever greater – per academic year – on the presentation of supporting

evidence;

Medical treatment – up to USD 50,000 to meet expenses outside India based on the

estimate provided by medical practitioner/hospital. Also, use of an amount of up to

USD 25,000 in respect of accommodation and travel or patient; and

Gifts and Donations – up to USD 5,000 per year.

3.3 Tax residency in Russia

3.3.1 Domestic tax legislation

In Russia, an individual who is seen to be tax resident is subject to tax on their worldwide income.

Non-residents are only subject to tax on their income received from a Russian source. A natural

person who is a resident taxpayer of Russia is currently taxed at a rate of 13 per cent on their

income expressed in money or in kind unless otherwise defined in the Russian Federation tax

legislation. A non-resident taxpayer is taxed at a rate of 30 per cent applicable to the income

earned from a Russian-source. These rates of tax are subject to change, based on the application

of a DTA. Where a taxpayer is earning employment income in Russia as a result of being

classified as a highly skilled foreign profession, they are also however subject to tax at 13 per

cent, even when regarded as a non-resident for tax purposes (Deloitte, 2019b:5).

An individual taxpayer who is physically present in Russia for more than 183 calendar days over

12 months will be regarded as resident in the Russia Federation for tax purposes. Where an

59

individual taxpayer spends time outside of the Russian Federation for short periods of less than

six months, to undergo medical treatment or for education or for services rendered outside of the

Russian Federation at an offshore hydrocarbon deposits site, these days do not count as days

outside of the Russia Federation (FTS, 2019b).

As referred to in an article published by Withersworldwide on 20 February 2015, the FTS issued

a letter, to be used as guidance about the determination of tax residency in Russia. The Russian

FTS states if a taxpayer does not meet the required time test as set out in the definition of

residency, the taxpayer could still be a tax resident as they retain a permanent home in Russia or

it can be determined that their centre of vital interests remain within the Russian Federation

(Boltenko, 2015).

This principle is in line with the ‘tie-breaker’ rules set out in Article 4 of most DTAs. It is Boltenko’s

view that this conclusion made by the FTS was not correct, although the letter was meant to be

used as guidance in the matter of residency, for an international treaty to apply, the individual

begins by being regarded as a resident in terms of the domestic legislation in both countries to

which the treaty is applicable (Boltenko, 2015). Boltenko was of the view that this letter would

lead to changes being made to the residency definition used by the FTS (Boltenko, 2015). To

date, no changes have been implemented in this regard.

3.3.2 Ceasing to be a tax resident

No specific rules are legislated advising when an individual is no longer be regarded as a tax

resident in Russia. As an individual becomes a resident after spending more than 183 days in

Russia in 12 months, the extrapolation is that if a person does not meet this requirement they are

non-resident during that year of assessment (FTS, 2019b).

3.3.3 Double Taxation Agreements

As published on the FTS website Russia has entered into 80 DTAs with countries around the

world (FTS, 2019a). As previously mentioned in chapter 2, the application of a DTA can be vitally

important in determining the tax treatment of income and capital gains applicable to an individual.

As stated in 3.3.1 above, the definition of a resident applicable in the DTA may influence a

potential amendment of the definition of resident set out in the domestic legislation currently

adopted by the FTS (Boltenko, 2015).

60


Should a person wish to remain in Russia permanently, that person has the option of obtaining

permanent residency or citizenship. Both options will allow that person to enjoy the rights afforded

by a Russian national. For both applications, a person will be required to be legally living in the

country, which is achievable by having already obtained a temporary residence permit or a highly

skilled migrant visa or ‘long-stay’ work permit (Expatica, 2019).

As a permanent resident – a person can take up employment in Russia without a work permit and

will enter and exit the country without needing a separate visa. Also, the individual can access

Russian social services and set up a business in Russia. Voting in a local election is also possible

after obtaining permanent residency (Expatica, 2019).

Russian citizenship allows all of the above benefits. Also, a person can vote in a national election

and take up office in a governmental position also being able to serve in the military. However, a

person cannot be deported from Russia and can freely travel to and from the country (Expatica,

2019).

If a person is married to a Russian citizen or is of Russian descent with Russian parents, that

person will be able to obtain citizenship via naturalisation. Dual residency is allowed by the

Russian government by the state laws only and not those of the federation. A person who wishes

to apply for citizenship via naturalisation is required to renounce the citizenship of their primary

home country during the application process. This could result in a person losing citizenship in

their home country, depending on their citizenship requirements (Expatica, 2019).

In terms of article 62 of the Constitution of the Russian Federation, a Russian citizen may hold

dual citizenship should it be allowed in terms of the deferral law of an international agreement

entered into between the Russian Federation and another country. ‘Foreign nationals and

stateless persons shall enjoy in the Russian Federation the rights and bear the obligations of

citizens in the Russian Federation, except for cases envisaged by the federal law or the

international agreement of the Russian Federation’ (Russia, 1993).

Based on the above it is therefore relatively easy to require permanent residency and citizenship

which allow a person to remain in Russia and to work in Russia if this is a requirement of that

individual.

61


The Central Bank of the Russian Federation (CBR) was established in July 1990 after the fall of

the USSR and expected to function independently from the federal and governmental structure

of the Russian Federation. During the period between 1992 and 1995, the bank implemented a

supervisory role carrying out inspections of commercial banks located within Russia and a system

of foreign exchange regulations and controls. The purpose of the monetary policy of the bank was

to maintain financial stability and economic growth that can be supported (CBR, 2019b).

The Bank of Russia is not liable for government debt, unless federal law stipulates it and is

accountable to the State Duma of the Federal Assembly of the Russian Federation (referred to

hereafter as the ‘State Duma’). A governor and other members of a board of directors lead the

bank and report back to the State Duma. Parliamentary hearings take place periodically by the

State Duma on the Bank of Russia activities interacting with its representatives, the Central Bank

of the Russian Federation (CBR, 2019a).

As per the Russian Highlights 2019 documentation published by Deloitte in January 2019, where

a person is a citizen of Russia or holds a residence permit, that person is a ‘currency-controlled

resident’. As a currency-controlled resident, with a bank account at a bank outside of Russia,

must report all details of transactions taking place in this account and details of the opening,

amending or termination of such account to the Russian FTS. Exchange control restrictions are

in place concerning the use of a foreign bank account and any transactions using this account

must conform to Russian legislation. Russians spending more than 183 days out of Russia are

exempt from the reporting obligations (Deloitte, 2019b).

With effect from 1 January 2020, all current control restrictions pertaining to payments made to a

bank account of a Russian located in an OECD of Financial Action Task Force (FATF) state

resident will end if the bank account is in a country that signed up to the AEOI. Russian residents

will therefore be able to use such declared bank accounts for investment purpose without

restriction (Baker McKenzie, 2019:1).

The FATF, is an inter-governmental body established in 1989 to ‘set standards and promote

effective implementation of legal, regulatory and operational measures for combatting money

laundering, terrorist financing and other related threats to the integrity of the international financial

system’ (FATF, 2019).

As discussed in 1.3 above, as of 25 April 2019, 105 countries have signed the Multilateral

Competent Authority Agreement on AEOI and intended first information exchange date, including

South Africa. With the automatic sharing of financial information, the governments to which the

62

financial institutions are obligated to report will be aware of any undeclared income not previously

disclosed, eliminating additional reporting required by the individual. Russia signed this

agreement agreeing to the exchange of information in September 2018 (OECD, 2019)

The exchange control amendments expected on 1 January 2020 relating to an individual receiving

payments from a non-resident into their foreign bank accounts. Such individuals will be allowed

to receive payments under a foreign trade agreement or the sale of previous metals held in a

foreign bank account to be deposited into such accounts in Russian Roubles without any

repatriation requirements. A resident will no longer be required to submit annual reports to the tax

authorities if the total credits/debits do not exceed RUB 600,000 (roughly ZAR 138,442/ USD

9,4051) or where no fund credits were noted during the year, having a balance at the end of the

tax year of below RUB 600,000 (Baker McKenzie, 2019:1).

Based on the above, it is therefore apparent that with the automatic exchange of information

between countries, a large amount of data is available to monitor a person’s cross border

transactions, and imposing exchange controls could be seen as superfluous.

3.4 A comparison

3.4.1 Income tax

Of the three countries reviewed above, South Africa is the only country that examines the intention

and facts and circumstances applicable to a taxpayer in determining their tax residency. The test

of being ordinarily resident is unique to each individual and their facts and circumstances. South

Africa only applies a time test if the test of being ordinarily resident is not applicable (see 2.2.1).

The physical presence test used by South Africa and the residency test used by India is more

comprehensive than that applied by the Russian tax authorities who only examine 12 months to

determine residency. The South African time test looks at a period of six years of assessment

and the time spent by that individual in each year and requires the taxpayer to be present in the

country for at least half a year in aggregate during five-years. India has a more detailed time test

that examines a short period of half a tax year, or applies a five year test for persons spending a

more extended period in India. Also they are looking at each year separately as well as an

aggregate number of days. India then makes a further distinction, also based on the time a person

physically spent in India, in determining whether the taxpayer is an ordinarily resident or not an

1 RUB converted to exchange rate per www1.oanda.com on 23 November 2019.

63

ordinarily resident taxpayer looking at an aggregate time frame of up to ten years (see 2.2.2, 3.2.1

and 3.3.1).

Of the three tax regimes examined, South Africa is the only country that has included an exit

charge into their income tax legislation to compensate for the tax that the South African

government no longer collects once the taxpayer is a non-resident. This exit charge is calculated

on the disposal of the taxpayer’s worldwide assets received as a result of a taxpayer ceasing to

be tax resident (subject to the exclusion of South African immovable property) (see 2.6.1).

Although Russia and India have noticed an increase in the number of persons leaving the country

due to better global opportunities outside of India and Russia only India has taken steps to form

a committee to discuss the possibility of an exit tax. India requires a taxpayer exiting the country

to obtain a compliance certificate confirming that their current tax obligations in India have been

met, during the time that they lived in India before the date of their departure (see 3.2.2 and 3.3.2).

What is pertinent is that all three countries have signed a significant number of DTAs with other

countries that assists in the correct taxes being paid in each country, and in some cases protecting

the tax based of their country established on the source of income. In the case of the Russian

Federation the definition of residency in the DTA may form the basis of revisiting the definition of

tax residency, other than the basic time test used at present (see 2.3.3, 3.2.3 and 3.3.2).

Each of the three countries has signed the OECD Multilateral Competent Authorities’ Agreement

on AEOI (OECD, 2019). As a result, should any taxpayers declare their residency correctly with

the financial institutions outside their native country of residence, all income is reported to the

revenue authority where they have confirmed their residency (OECD, 2019).


A taxpayer can apply for permanent residency in South Africa, India or Russia should they meet

the requirements. Citizenship can also be obtained by an applicant, as a result of lineage or

meeting the requirements being met by the relevant government authorities (see 2.5, 3.2.4 and

3.3.4).

In South Africa should a person wish to apply for citizenship in another country while also retaining

their South African citizenship, that person will require permission from the Department of Home

Affairs to do so before applying for permanent residency elsewhere, to retain their South African

citizenship. A South African is therefore allowed to have dual citizenship (see 2.5).

64

India will initially also grant permanent residency to a new immigrant but does not allow dual

citizenship to its residents. Should a person wish to obtain citizenship in India, they will be required

to terminate their citizenship in their primary country of residence. Likewise, if they obtain

citizenship in a country other than India they will lose their Indian citizenship (see 3.2.4).

Russia allows a person to have dual citizenship. However, in part of the application process for

citizenship, a person is required to have no other citizenship, resulting in an applicant losing their

primary citizenship before applying. When exiting Russia, there is however no obligation to revoke

Russian citizenship to gain another, and dual citizenship can be retained (see 3.2.4).

Based on the above, a person should therefore be mindful of their government’s requirements to

retain citizenship in their country of residency, should they be considering permanent relocation

to another.


According to Koval et al (2018: 22) in a publication by the Centre of Strategic Research (CSR)

addressing the reformation of foreign exchange regulations and control in Russia, comments

were made to developing countries moving away from regulating cross-border monetary flows.

Instead they were concentrating on harsher tax regulations and the monitoring of any

irregularities. Many Exchange Control Regulations have been eased in OECD member countries.

Countries still regarded as developing countries with ever-changing economies, however, still

have foreign exchange restrictions – including those in the BRICS member states.

This report published by the CSR goes on to summarise the countries’ exchange control policies

as follows:

India prevents a resident of India from opening a bank account in a country outside of

India or borrowing foreign currency (except in certain circumstances). Indian residents are

also obliged to repatriate all funds received abroad to India (Koval et al., 2018:23).

Russia requires all residents to submit their reports directly to the Russian FTS quarterly,

detailing the transactions carried out by that resident on that account (Koval et al,

2018:23). After the publication of this report, certain exchange control restrictions were

then abolished further, as detailed in 3.3.5 above.

South Africa also applies restrictions to a resident obtaining foreign currency outside of

South Africa and the reporting obligations of such transactions. South African residents

are allowed to invest up to ZAR11 million per calendar year for purposes of investment,

provided the funds are correctly reported to the SARB (Koval et al, 2018:24). A capital

investment of R10 million using his/her foreign capital allowance, requiring a third party

65

pin to be obtained from SARS, and R1 million using his/her single discretionary allowance

(SARB, 2019b).

Although all three countries have a central bank set up specifically to protect the balance of the

country’s foreign reserves, to a large extent the restrictions have monitored and controlled the

percentage of their capital lost to emigration. Formalising an emigration from South Africa via the

SARB from an exchange control perspective can eliminate most of the restrictions imposed on

their foreign currency transactions. Should a person leave India permanently and no longer be

regarded as a ‘person resident in India’ they too have no restrictions on their offshore assets (see

2.7 and 3.2.7 above).

3.5 Conclusion

South Africa has comprehensive rules governing the residency requirements of a person ceasing

to be resident in terms of income tax, exchange control and border control. Although India and

Russia also have requirements that need to be addressed in each of these three terms, South

Africa has the most comprehensive requirements (see 3.4.1, 3.4.2 and 3.4.3).

South Africa is the only country with an ‘exit tax’ strategy, where tax is collected from a resident

when ceasing to be a tax resident. This is something that India and Russia could learn from going

forward to maximise their revenue collection. (see 3.4.1).

As all three countries have signed up for the automatic sharing of financial information, there may

be a move for all three countries to relax their exchange control requirements. The information

shared between revenue offices may assist in the monitoring of the cross border flow of funds.

Russia having recently relaxed their exchange control regulations, perhaps South Africa and India

will follow suit (see 3.4.1 and 3.4.3).

From a border control residency requirement of obtaining permanent residency and citizenship,

all three countries are flexible in allowing persons to acquire and give up their right to permanent

residency and citizenship. This lends itself to a global world. (see 3.4.2).

See table below with a summary of the relevant issues affecting tax and other residency

definitions as set out by India and Russia in comparison to those found in South Africa.

In this chapter the secondary objectives set out in 1.6.2 above, reviewing the impact of breaking

tax residency in South Africa and making a comparison with Russian and Indian legislation, have

been achieved.

66

In the next chapter an overall conclusion to this research document will be addressed providing

any recommendations based on the findings set out in chapter 2 and 3.

3.5.1 Summary table

Summary Table of Similarities and Differences in Residency

Table 3-1: Income tax comparative summary

Source of information presented above (Researcher’s own complication)

India Russia South Africa

Domestic legislation – tax residency

Only time test - with reference to days physically in country

Can be resident for tax but not ordinarily resident (see 3.2.1)

Only time test - with reference to days physically in country (see 3.2.1)

Ordinarily residence test based on facts and circumstances OR

Time Test – with reference to days physically in country (see 2.2)

Time test Two residency time tests:

Present for ≥ 182 days OR

Present > 60 days AND

Present for > 365 days in the previous 4 years of assessment (see 3.2.1)

Need to be present in the country for > 183 days in 12-months. (see 3.3.1)

6-year test – All must be met:

Present for > 91 days in current year AND

Present for > 91 days in each of the previous 5 years AND

Present > 915 days in total in previous 5 years (see 2.2.2)

Ordinary resident versus not ordinarily resident

If resident - not ordinarily resident if

Not resident in India for 9/10 years of assessment OR

Only present ≤ 729 days in the previous 7 years (see 3.2.1)

No further distinction made

No further distinction made

DTA application Similar provisions relating to an exclusive tax resident (see 3.2.3)

Similar provisions relating to an exclusive tax resident (see 3.3.3)

Similar provisions relating to an exclusive tax resident (see 2.3.1)

DTA/ Protocols 97 Countries (see 3.2.3)

80 Countries (see 3.3.3)

23 in Africa 56 in countries not Africa (see 2.3.3)

OECD and AEOI Signed September 2017 (OECD, 2019)

Signed September 2018 (OECD, 2019)

Signed September 2017 (OECD, 2019)

Ceasing to be Tax Resident

Currently no exit charge but consideration discussed by tax committee Clearance certificate required on exit to confirm compliance (see 3.2.2)

No exit charge No clearance certificate (see 3.3.2)

Exit charge – Deemed disposal of worldwide assets with some exceptions (see 2.6.1)

67

Table 3-2: Exchange control comparative summary


Table 3-3: Immigration comparative summary



Exchange control regulator

The RBI is wholly owned by the Government of India (see 3.2.7)

The CBR is governed by an independent body that reports to the government (see 3.3.5)

The SARB is governed by an independent body that reports to the government (see 2.4)

Exchange control restrictions relating to natural persons leaving the country

Will not meet the definition of a ‘person resident in India’ and as a result will not be subject to exchange control restrictions currently in place (see 3.2.7)

Will not be regarded as a currency-controlled resident and as a result will not have restrictions applied to them. (see 3.3.5)

Annual allowances of R10 m

If formal application lodged: o No further restrictions o Can remit unlimited funds

in excess of R10 million o May still have restrictions

with regards to South African trusts (see 2.4.1)

Exchange Control Regulations And Restrictions Applicable To Individuals

Where a ‘person resident in India’ prohibited from transacting in any foreign exchange of foreign securities of any kind without permission from RBI (see 3.2.7)

Up until 1 January 2020 if ‘currency control resident’ - all transactions of foreign account to be reported to FTS.

From 1 January 2020, restrictions lifted if account held in OECD member state or FATF country signed up for the AEOI. (see 3.3.5)

Allowances R11 million p.a.

income earned abroad to be repatriated to South Africa within 30 days if earned in South Africa

Reporting required when obtaining assets offshore – permission to retain abroad

Cannot reinvest back into South Africa via offshore structure

If leave South Africa permanently without formal emigration– all of the above will still apply (see 2.4.1)


Immigration Laws regarding becoming resident and termination of residency

India gives a person the option of –

o OCI card OR o PIO Card (up to May 2014) Both provide permanent residency in India without having to obtain citizenship.

India does not permit dual citizenship –

o Should Indians apply for citizenship in a country outside India will lose Indian citizenship

(see 3.2.4 and 3.2.5)

The Russian Federation gives the option of obtaining a permanent residency permit as well as citizenship in Russia.

Russia allows dual citizenship but imposes conditions that apply during the application process that may result in losing the citizenship of the original country of residence. (see 3.3.4)

There are various requirements, depending on the purpose of entry.

If citizenship in South Africa, if leaving South Africa permanently, breaking tax and exchange control residency - will not lose citizenship.

If citizenship applied for in another country - permission is required before application made (see 2.5 and 2.8)

68

CHAPTER 4: CONCLUSION

4.1 Conclusion

Due to the changes to be made to the foreign employment exemption, bringing additional funds

into the fiscus, taxpayers are investigating the possibility of permanently severing their ties with

South Africa and ceasing to be tax and exchange control resident in South Africa.

Following the detailed analysis of South Africa’s residency definitions in South Africa and the

comparison in addressing the similarities between India and Russia, the purpose of this chapter

is to summarise key findings and provide a conclusion as set out in the problem statement in

chapter 1.

In the problem statement the question dealing with the analysis and the process surrounding the

breaking of tax residency in South Africa, whether other countries may offer a better solution.

Chapter 2 further provides an in-depth analysis of what is meant by the term residency in South

Africa including the practical challenges involved concerning applying the law in practice. Chapter

3 then compared South Africa’s residency rules to those of India and Russia who also have a

large population of migrant taxpayers, moving in and out of the country.

4.2 Research objectives

As the primary objective of this study, an in-depth analysis describes in details the South African

definition of residency for income tax, exchange control, and immigration purposes.

A comprehensive summary table can be found highlighting the differences between the countries

in 3.5.1 above.

4.2.1 First secondary objective

In reviewing this objective along with the first secondary objective of critically analysing who is

resident in South Africa, chapter 2 provided a discussion concerning the three definitions of

residency in South Africa and how it interacts with each other, and whether each definition is

mutually exclusive. While ceasing to be resident from an exchange control perspective and,

lodging an application with the SARB, this action does not automatically result in ceasing to be

tax resident (see 2.7).

The South African definition of residency is complex, and takes factors relating to each taxpayer’s

intention and facts and circumstances into account in assisting with the determination of their

69

becoming resident in South Africa and in turn their ceasing to be resident. The application of a

time test, can be manipulated via human intervention, as this test is based on the facts of when a

person is physically present in or out of a country. When looking at the ordinarily resident test,

various factors are applied in determining the intention of the taxpayer (see 2.2).

Combining international case law and the application of DTAs is beneficial in trying to determine

becoming resident or ceasing to be resident for tax purposes. In a global world where many

taxpayers travel for short or long-term contracts, the time test might only provide a basic answer

as to where a taxpayer is ultimately resident.

South Africa’s exchange control residency rules can also complicate the ceasing to be resident

from a tax viewpoint. Making an application to the SARB confirming the intention to relinquish a

home in South Africa permanently, is an added step in analysing your intention in terms of being

ordinarily resident or not (see 2.6, 2.7 and 2.8).

Practically, being unaware of the correct tax treatment when breaking tax residency could result

in further complications due to the exit charge payable to SARS, concerning the deemed disposal

of the world wide assets of a taxpayer and making the relevant disclosure to SARS and the timing

thereof. Although SARS legislation and guidance surrounding the breaking of residency is robust,

without correct advice from a professional, the correct disclosure to SARS may not be forthcoming

(see 2.6)

A comprehensive summary highlighting the various aspects of South Africa’s residency

definitions, is in the summary table in 2.9.4 summarised below:

South Africa has two tests in order to determine residency for tax purposes set out in the

Income Tax Act. The first test is based on the intention and facts and circumstances of a

taxpayer, looking at case law. The second test is a time test based on a period of six

years. When ceasing to be tax resident, this no longer meets the requirements set out in

the Income Tax Act, or a DTA results in you being exclusively resident elsewhere.

On ceasing to be a tax resident, the individual is deemed to have disposed of world-wide

assets at market value on the date immediately before the date on which he/she ceased

to be resident. A payment to SARS may be required on this date.

Since the introduction to e-filing in 2007, SARS has no measure in place in a tax return to

track the residency status of a taxpayer. The e-filing system does not make provision for

two tax years and two income tax returns to be filed with SARS in the year in which the

taxpayer ceased to be resident.

70

A person can financially emigrate from South African from an exchange control

perspective by applying to the SARB. To do this they must be permanently resident in a

country outside of South Africa and have evidence thereof as part of the application.

Financially emigrating does not affect the tax residency status of a person. Should a

person emigrate financially from South Africa from an exchange control perspective, they

will no longer be subject to exchange control restrictions as determined by the SARB.

Should a South African wish to obtain citizenship in another country, they will require

permission from the Department of Home Affairs before doing so in order to retain their

citizenship in South Africa.

Based on the above, a person wishing to relocate to another country should therefore approach

their exit from South Africa on a tax, exchange control and border control level, in order to

determine the implications on each level and how they interact with each other.

4.2.2 Second secondary objective

When considering the second secondary objective of this study, chapter 3 then compared the

residency rules set out in South African legislation, to those of India and Russia. India and Russia

are both regarded as developing countries with large numbers of migrating taxpayers entering

and leaving the country to find employment on international shores (also see summary tables

above in 3.5.1).

All three countries have a time test based on the number of days a taxpayer is physically in the

country to determine the residency status of that person in that country. South Africa, also has a

further test, applied before the time test, to evaluate the intention of a taxpayer and the facts and

circumstances around why and how the taxpayer is residing in South Africa.

South Africa is the only country that currently has an exit charge for tax purposes. As part of the

study it established that there was an intimation that India may amend their residency rules to

perhaps implement an exit charge on their permanent emigrants (see 3.2.2). There was an

indication that Russia might amend their residency rules, to be more aligned with the international

rules set out in a DTA, considering more than merely the time test (see 3.3.2).

Residency from the perspective of permanent resident and citizenship is relatively similar in all

three countries. If the requirements of permanent residency or citizenship are met, an application

can be made to the relevant government authority and this can be granted. Both South Africa and

Russia, do allow dual citizenship. Permission is required by the South African tax authorities when

a South African resident applies for citizenship in another country and Russia may require

citizenship in the primary country of residence to be relinquished when applying for citizenship in

71

Russia. However, India does not permit dual citizenship while remaining citizen of India (see 2.5

and 3.4.2).

All three countries have currency controls in place, where the foreign currency made available to

residents of each country is governed and controlled by a central bank and mainly, impose

exchange control restrictions on residents of each country, while travelling abroad (see 2.4, 3.2.7

and 3.3.5).

With the increase in money laundering provisions and controls on an international basis, and as

a result of more and more international travellers, the OECD implements the Multilateral

Competent Authority Agreement on AEOI. South Africa, India and Russia all signed up as

participants of this mutual sharing agreement. As a result, it will be difficult for residents of each

of these countries to ‘hide’ investments outside their country of residence, without their respective

revenue authorities becoming aware of such income. Determining one’s residency status, for

reporting purposes is essential in the future (OECD, 2019).

A comprehensive summary table highlights the differences between the countries (see in 3.5.1).

4.3 Overall conclusions and recommendations

South African legislation has over the years refined their residency definition and legislation

addressing the change of residency in South Africa. SARS has also released guidelines to aid a

taxpayer in determining their residency, with the assistance of international case law and

principles. Although providing comprehensive legislation and guidelines, from a practical

perspective it is not always easy to apply the law.

Recommendations are that SARS introduce a section in the electronic income tax return that a

taxpayer can complete for tracking of their residency status, and whether they regard themselves

as non-resident or not. In this way, SARS can monitor whether the taxpayer becomes resident in

terms of the physical presence test to correctly assess their taxable income in South Africa (see

2.2.2 and 2.6.1.1.1).

SARS should also address the concept of a year of assessment ending on a date before

28/29 February, as a result of a taxpayer ceasing to be a resident in terms of section 9H of the

Income Tax Act. In this way, a taxpayer without source income in South Africa, can complete his

income tax return up until the date he ceased to be a tax resident and then the taxpayer can be

de-registered as a taxpayer. Should the taxpayer then earn income from a South African source,

they can then complete a separate return to SARS disclosing such income to SARS - see

2.6.1.1.2).

72

As mentioned in 2.7.1, should a taxpayer submit an application to the SARB with regards to a

financial emigration for exchange control purposes, the applicant is required to obtain a tax

clearance from SARS. In terms of section 256(2) of the Tax Administration Act, the issuing of a

tax clearance within 21 business days from the date of application. In the case of a taxpayer who

wishes to remit an amount in excess of R10 million offshore as part of his emigration, it is practice

of SARS to forward this matter on to the audit department for purposes of undergoing a health

check verification audit, which can take up to 6 months in order to finalise. It is recommended that

SARS align their current legislation to the Tax Administration Act, in order for the taxpayer to have

an avenue of following up on the matter.

It is proposed that SARS being their legislation in line with the practical monitoring of residency

which could be a topic for further study.

Although India and Russia were seen to be similar to South Africa, as they both have a large

number of migrating taxpayers and also have systems of exchange controls in place to monitor

the currency flows in an out of the country, little could be drawn from Indian and Russian

legislation to improve South African residency regulations (see 3.4.1, 3.4.2 and 3.4.3).

South Africa has a robust residency regime that has been comprehensively legislated over the

years. South Africa also has both a subjective test as well as a time test to determine residency

for tax purposes, taking a broad set of facts and circumstances into account, including the

application of a DTA.

Although South Africa and India still have exchange controls in place, the exchange of information

implemented by the OECD will lead to more cooperation between countries in sharing information,

reducing the degree of additional monitoring via exchange controls being needed. This

effectiveness of countries sharing of financial information could be a topic for further study.

73

REFERENCE LIST

Angloinfo. 2019. Angloinfo India – Residency in India https://www.angloinfo.com/how-

to/india/moving/residency Date of access: 8 Sep 2019.

Australia. 2018. Harding v Commissioner of Taxation [2018] FCA 837.

Australia. 2019. Harding v Commissioner of Taxation [2019] FCAFC 29.

Baker McKenzie. 2019. Currency control – Russia.

https://f.datasrvr.com/fr1/719/13629/RCC_Legal_Alert_ENG.pdf Date of Access: 24 Sep 2019.

Baruch, Y. & Forstenlechner, I. 2017. Global careers in the Arabian Gulf: understanding motives

for self-initiated expatriation of the highly skilled, globally mobile professionals. Career

development international. 22(1): 3-22.

Boltenko, O. 2015. Definition of Russian tax residency for individuals – potential changes?

https://www.withersworldwide.com/en-gb/insight/definition-of-the-Russian-tax-residency-for-

individuals-potential-changes Date of access: 14 Sep 2019.

Canada. 1928. Levene v Inland Revenue Commissioner [1928] All ER Rep. 746 (HL).

Canada. 1946. Thomson v Minister of National Revenue 2 DTC 812 (SCC).

CBR (Central Bank of the Russian Federation). 2019a. Legal Status and Functions of the Bank

of Russia. https://www.cbr.ru/eng/today/bankstatus/ Date of access: 15 Sep 2019.

CBR (Central Bank of the Russian Federation). 2019b. The Central bank of the Russian

Federation. https://www.cbr.ru/eng/today/cbrf_itm/cbrf_sub/ Date of access: 15 Sep 2019.

Centre for Strategic Research. 2018. Reforming foreign exchange regulations and foreign

exchange control in Russia. https://www.csr.ru/wp-content/uploads/2018/09/REFORMING-

FOREIGN-EXCHANGE-REG_ENG_INTERNET.pdf Date of access: 15 Sep 2019.

Cliffe Dekker Hoffmeyr. 2018. The residency requirements in Australia: a ‘hard’ knock for the

taxpayer in a decision made by the Federal Court of Australia.

74

https://www.cliffedekkerhofmeyr.com/export/sites/cdh/en/news/publications/2018/Tax/Download

s/Tax-and-Exchange-Control-Alert-6-July-2018.pdf Date of access: 17 Aug 2019.

Cohen v Commissioner for Inland Revenue see South Africa.

Commissioner for Inland Revenue v Kuttel see South Africa.

Commissioner for Inland Revenue v Lever Brothers & Unilever Limited see South Africa.

Commissioner for the South African Revenue Service v Tradehold Ltd see South Africa.

Crush, J. & Pendleton, W. 2010. Brain flight: the exodus of health professionals from South

Africa. International Journal of Migration, Health and Social Care, 6(3):3-18.

Currency and Exchange Control Act see South Africa.

Deloitte. 2019a. International tax India highlights 2019.

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-indiahighlights-

2019.pdf Date of access: 8 Mar 2020.

Deloitte. 2019b. International tax Russia Highlights 2019.

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-russiahighlights-

2019.pdf Date of access: 14 Sep 2019.

Domicile Act see South Africa.

Dudovskiy, J. 2019a. Epistemology research philosophy. https://research-

methodology.net/research-philosophy/epistomology/ Date of access: 23 Mar 2019.

Dudovskiy, J. 2019b. Ontology research philosophy. https://research-methodology.net/research-

philosophy/ontology/#_ftn2 Date of access: 22 Mar 2019.

Dudovskiy, J. 2019c. Realism research philosophy. https://research-methodology.net/research-

philosophy/realism/ Date of access: 23 Mar 2019.

Du Plessis, A.L. 2018. A review of the residency definition for natural persons in South African

income tax regime. Potchefstroom: North-West University. (Dissertation – Mcom).

75

Exchange Control Amnesty and Amendment of Taxation Laws Act see South Africa.

Expatica. 2019. Russian citizenship: getting a Russian passport or Russian permanent residency.

https://www.expatica.com/ru/moving/citizenship/russian-citizenship-getting-a-russian-passport-

or-russian-permanent-residency-995117/ Date of access: 24 Sep 2019.

FATF (Financial Action Task Force). 2019. Who we are. https://www.fatf-gafi.org/about/ Date of

access: 24 Sep 2019.

Federation of Rhodesia and Nyasaland. 1961. ITC 961 (1961) 24 SATC 648.

FTS (Federal tax service of Russia). 2019a. Applicable double taxation treaties.

https://www.nalog.ru/eng/international_cooperation/dta/ Date of access: 24 Sep 2019.

FTS (Federal tax service of Russia). 2019b. Residents.

https://www.nalog.ru/eng/taxation_in_russia/ndfl/rezidents/ Date of access: 14 Sep 2019.

H v Commissioner of Taxes see Southern Rhodesia.

Hutchinson, T.C. 2015. The doctrinal method: incorporating interdisciplinary methods in

reforming the law. rrasmus law review, 8(3):130-138.

Immigration Act see South Africa.

Income Tax Act see South Africa.

Indian Income Tax Act see India.

India. 1961. Income Tax Act of 1961. https://www.incometaxindia.gov.in/pages/acts/income-tax-

act.aspx Date of access: 24 Aug 2019.

India. 1983. The Emigration Act of 1983.

https://emigrate.gov.in/ext/static/TheEmigrationAct_Part1.pdf Date of access: 8 Sep 2019.

India. 1999. Foreign Exchange Management Act of 1999.

https://www.incometaxindia.gov.in/pages/acts/foreign-exchange-management-act.aspx date of

access: 24 Aug 2019.

76

India. 2005. Overseas Citizenship of India (OCI Cardholder).

https://mha.gov.in/PDF_Other/Introduction_OCI_cardholder_25042017.pdf Date of access:

28 Oct 2019.

India. 2007. The Constitution of

India.https://www.india.gov.in/sites/upload_files/npi/files/coi_part_full.pdf Date of access:

8 Sep 2019.

India. 2015. Gazette no 26011/06/2014-OCI. 16 January 2015.

https://mha.gov.in/PDF_Other/Merge_PIO_OCI.pdf Date of access: 28 Oct 2019.

India. 2019. Salient aspects of Emigration

Bill.https://mea.gov.in/Images/amb1/Salient_aspects_of_Emigration_Bill_2019.pdf Date of

access: 8 Sep 2019.

Interpretation Act see South Africa.

IRS. 2019. Introduction to residency under US tax law.

https://www.irs.gov/individuals/international-taxpayers/introduction-to-residency-under-us-tax-

law Date of access: 17 Aug 2019.

Iyer, S. 2018. India wants to use an “exit tax” to stop its millionaires from fleeing. Quartz India, 11

Apr. https://qz.com/india/1246023/india-plans-an-exit-tax-to-stop-millionaires-from-fleeing/ Date

of access: 24 Aug 2019.

Kably, L. 2018. No Entry for Exit Charge. The Economic Times. 24 Dec.

https://economictimes.indiatimes.com/blogs/law-street/no-entry-for-exit-charge/ Date of access:

25 Aug 2019.

Klein, H.K. & Myers,M.D. 1999. A set of principles for conducting and evaluating interpretive

field studies in information systems. MIS Quarterly, 23(1):67-94.

Koval, A., Levashenko, A., Sinelnikov-Murylyov, S. & Trunin, P. 2018. Reforming foreign

exchange regulations and foreign exchange control in Russia. Centre for Strategic Research,

Mar 2018. https://www.csr.ru/wp-content/uploads/2018/09/REFORMING-FOREIGN-

EXCHANGE-REG_ENG_INTERNET.pdf Date of access: 15 Sep 2019.

77

KPMG. 2019. India – income tax, taxation of international executives.

https://home.kpmg/xx/en/home/insights/2011/12/india-income-tax.html 1 May 2019. Date of


Leon, J. 2018. Interview on Radio 702. South African’s expected to break emigration records

this year. http://www.702.co.za/articles/314087/south-africans-expected-to-break-emigration-

record-this-year Date of access: 16 Feb 2019.

Leon, J. 2019. Massive jump in the number of South Africans applying to financial emigration.

https://businesstech.co.za/news/finance/321847/massive-jump-in-the-number-of-south-africans-

applying-for-financial-emigration/ Date of access: 10 Nov 2019.

Levene v Inland Revenue Commissioner see Canada.

Lexico. 2019. Lexico dictionary powered by Oxford – Domicile.

https://www.lexico.com/en/defintiion/domicile Date of access: 27 Jul 2019.

Loyson, R. M. 2010. A critical analysis of the income tax implications of persons ceasing to be a

resident of South Africa. Nelson Mandela Metropolitan University. (Thesis – Mcom).

McKerchar, M. 2008. Philosophical paradigms, inquiry strategies and knowledge claims:

applying the principles of research design and conduct to taxation. eJournal of Tax Research

6(1):5-22.

National Treasury (South Africa). 2005. Budget review - chapter 4.

http://www.treasury.gov.za/documents/national%20budget/2005/review/Chapter%204.pdf Date

of access: 13 Jul 2019.

National Treasury (South Africa). 2017a. Budget review - annexure F.

http://www.treasury.gov.za/documents/national%20budget/2017/review/Annexure%20C.pdf

Date of access: 9 Feb 2019.

National Treasury (South Africa). 2017b. Final response document on taxation laws Amendment

bill, 2017 and taxation administration laws amendment bill, 2017.

http://www.treasury.gov.za/publications/RevenueLaws/2017%20Final%20Response%20Docum

ent%20-2017%20TLAB%20and%20TALAB-15%20December%202017.pdf Date of access:

9 Feb 2019.

78

National Treasury (South Africa). 2019. Budget review - chapter 4.

http://www.treasury.gov.za/documents/national%20budget/2019/review/Chapter%204.pdf


New World Encyclopaedia. 2015. Relativism.

http://www.newworldencyclopedia.org/entry/Relativism Date of access: 22 Mar 2019.

OECD (Organisation for Economic Co-operation and Development). 2017. Model tax

convention on income and on capital: condensed version 2017. https://read.oecd-

ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-condensed-version-

2017_mtc_cond-2017-en#page Date of access: 25 May 2019.

OECD (Organisation for Economic Co-operation and Development). 2019. Signatories of the

multilateral competent authority agreement on automatic exchange of financial account

information and intended first information exchange date. https://www.oecd.org/tax/exchange-

of-tax-information/MCAA-Signatories.pdf Date of access: 27 Apr 2019.

Olivier, L. & Honiball, M. 2011. International tax - a South African perspective. 5th ed. Cape

Town: Siber Ink.

Philosophy Terms. 2018. Positivism. https://philosophyterms.com/positivism/ Date of access:

23 Mar 2019.

PwC. 2013. Sharp rise predicted in global assignments as organisations try to plus skills gaps.

https://www.pwc.co.za/en/press-room/talent-mobility.html Date of access: 10 Feb 2019.

PwC. 2019. India, individual – foreign tax relief and tax treaties. 6 June 2019.

http://taxsummaries.pwc.com/ID/India-Individual-Foreign-tax-relief-and-tax-treaties Date of


RBI (Reserve Bank of India). 2019a. About us.

https://www.rbi.org.in/Scripts/AboutusDisplay.aspx#EP Date of access: 31 Aug 2019.

RBI (Reserve Bank of India). 2019b. Frequently asked questions.

https://www.rbi.org.in/Scripts/FAQView.aspx?Id=22 Date of access: 29 Sep 2019.

Revenue Laws Amendment Act see South Africa.

79

Revenue Laws Second Amendment Act see South Africa.

Russian Federation. 1993. The Consitution of the Russian Federation – Chapter 2. Rights and

freedoms of man and citizen - English translation http://www.constitution.ru/en/10003000-

03.htm Date of access: 10 Nov 2019.

SARB (South African Reserve Bank). 2019a. About Us.

https://www.resbank.co.za/AboutUs/Pages/About%20Us-Home.aspx Date of access:

24 Sep 2019.

SARB (South African Reserve Bank). 2019b. Currency and exchange manual for authorised

dealers.

https://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeContr

ol/Documents/Currency%20and%20Exchanges%20Manual%20for%20Authorised%20Dealers.

pdf Date of access: 9 Feb 2019.

SARB (South African Reserve Bank). 2019c. Background.

https://www.resbank.co.za/AboutUs/History/Background/Pages/Background-Home.aspx Date of


SARB (South African Reserve Bank). 2019d. Reserve bank shares.

https://www.resbank.co.za/AboutUs/Shareholding/Pages/Shareholding-Home.aspx Date of

access: 24 Sep 2019.

SARB (South African Reserve Bank). 2019e. Exchange control circular no 18/2019.

https://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeContr

ol/Documents/Exchange%20Control%20Circular%20No.%2018-2019.pdf Date of access: 18

Nov 2019.

SARS (South African Revenue Service). 2000a. Briefing note – residence basis of taxation.

http://www.sars.gov.za/AllDocs/LegalDoclib/RespDocs/LAPD-LPrep-Resp-2000-04%20-

%20Response%20Document%20Briefing%20Note%20Residence%20Basis%20Taxation.pdf


SARS (South African Revenue Service). 2000b. Explanatory memorandum on the revenue laws

amendment bill, 2000. http://www.sars.gov.za/AllDocs/LegalDoclib/ExplMemo/LAPD-LPrep-EM-

2000-

80

01%20%20%20Explanatory%20Memorandum%20Revenue%20Laws%20Amendment%20Bill

%202000.pdf Date of access: 9 Feb 2019.

SARS (South African Revenue Service). 2002. Interpretation note 3 – archived.

https://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2018-07-Arc-07%20-

%20IN3%20-%20Resident%20definition%20natural%20person%20ordinarily%20resident.pdf

Date of access: 21 Jul 2019.

SARS (South African Revenue Service). 2007. Medial Releases 2007 – The start of filing

season 2007. https://www.sars.gov.za/AllDocs/Documents/MediaReleases/2007/SARS-MR-

2007-036%20-

%20Media%20Release%20on%20The%20Start%20of%20Filing%20Season%202007%20-

%2031%20July%202007.pdf Date of access: 9 Nov 2019.

SARS (South African Revenue Service). 2009. Guide on the residence basis of taxation for

individuals (2008/09). https://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-IT-G02%20-

%20Guide%20on%20the%20Residence%20Basis%20of%20Taxation%20for%20Individuals.pd

f Date of access: 9 March 2020.

SARS (South African Revenue Service). 2012. Explanatory memorandum on the taxation laws

amendment bill, 2012. https://www.sars.gov.za/AllDocs/LegalDoclib/ExplMemo/LAPD-LPrep-

EM-2012-01%20-

%20Explanatory%20Memorandum%20Taxation%20Laws%20Amendment%20Bill%202012.pdf

Date of access: 9 Aug 2019.

SARS (South African Revenue Service) (South Africa). 2016. Tax Administration Act, 2011 (Act

no. 28 of 2011): returns of information to be submitted by third parties. (Notice 1). Government

Gazette, 39575. Date of access: 10 Nov 2019.

SARS (South African Revenue Service) (South Africa). 2017. Tax Administration Act, 2011 (Act

no. 28 of 2011): returns to be submitted by third parties. (Notice 192). Government Gazette,

40660. Date of access: 3 Mar 2019.

SARS (South African Revenue Service). 2018a. Resident: definition in relation to a natural

person – orginarily resident (Interpretation note 3 issue 2).

http://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2012-03%20-

81

%20Resident%20definition%20natural%20person%20ordinarily%20resident.pdf Date of

access: 9 Feb 2019.

SARS (South African Revenue Service). 2018b. Resident: definition in relation to a natural

person – physical presence test. (Interpretation note 4 issue 5).

https://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2012-04%20-

%20Resident%20definition%20natural%20person%20physical%20presence.pdf Date of

access: 17 May 2019.

SARS (South African Revenue Service). 2019a. Comprehensive guide to the income tax return

for individuals. https://www.sars.gov.za/AllDocs/OpsDocs/Guides/IT-AE-36-G05%20-

%20Comprehensive%20Guide%20to%20the%20Income%20Tax%20Return%20for%20Individu

als%20-%20External%20Guide.pdf Date of access: 21 Sep 2019.

SARS (South African Revenue Service). 2019b. Convention between the Republic of South

Africa and the United States of America for the avoidance of double taxation and the prevention

of fiscal evasion with respect to taxes on income and capital gains.

https://www.sars.gov.za/AllDocs/LegalDoclib/Agreements/LAPD-IntA-DTA-2012-82%20-

%20DTA%20United%20States%20of%20America%20GG%2018553.pdf Date of access:

16 Aug 2019.

SARS (South African Revenue Service). 2019c. International treaties and agreements.

https://www.sars.gov.za/Legal/International-Treaties-Agreements/Pages/default.aspx Date of


SARS (South African Revenue Service). 2019d. Supporting documentation for emigration.

https://www.sars.gov.za/ClientSegments/Individuals/TCS/Pages/Supporting-Docs-for-Emig.aspx

Date of access: 20 Jul 2019.

Shah v Barnet see United Kingdom.

Sharma, A.K. 2018. What is Hindu undivided family and how is it taxed? Livemint, 27 Jun.

https://www.livemint.com/Money/Xpv4c2blnXVtNQQokyA77K/What-is-Hindu-Undivided-Family-

and-how-is-it-taxed.html Date of access: 24 Aug 2019.

Soldier v Commissioner of Taxes see Southern Rhodesia.

82

South Africa. 1933. Currency and Exchange Control Act 9 of 1933.

South Africa. 1946a. Cohen v Commissioner for Inland Revenue 1946 AD 174, 13 SATC 362.

South Africa. 1946b. Commissioner for Inland Revenue v Lever Brothers & Unilever Limited 1946

AD 441, 14 SATC 1.

South Africa. 1957. Interpretation Act no 33 of 1957.

South Africa. 1961. GNR 1111 of 1 December 1961: regulations made under the Currency and

Exchanges Act 9 of 1933.

South Africa. 1962. Income Tax Act 58 of 1962 (as amended).

South Africa. 1992a. Commissioner for Inland Revenue v Kuttel 1992 (3) SA 242 (A), 54 SATC

298.

South Africa. 1992b. Domicile Act no 3 of 1992.

South Africa. 1995. South African Citizenship Act no 88 of 1995.

South Africa. 2000a. Revenue Laws Amendment Act 59 of 2000.

South Africa. 2000b. Silke on South African income tax. 2000. Income Tax Act 1999/2000.

Cape Town: Butterworths.

South Africa. 2001. Taxation Laws Amendment Act 5 of 2001.

South Africa. 2002. Immigration Act 13 of 2002.

South Africa. 2003. Exchange Control Amnesty and Amendment of Taxation Laws Act 12 of

2003.

South Africa. 2005. Revenue Laws Second Amendment Act 32 of 2005.

South Africa. 2011a. Tax Administration Act 28 of 2011 (as amended).

83

South Africa. 2011b. Taxation Laws Amendment Act 24 of 2011.

South Africa. 2012a. Commissioner for the South African Revenue Service v Tradehold Ltd

(132/11) [2012] ZASCA 61.

South Africa. 2012b. Taxation Laws Amendment Act 22 of 2012.

South Africa. 2017. Taxation Laws Amendment Act 17 of 2017.

South Africa. 2019. Apply for permanent residency permit. Government of South Africa.

https://www.gov.za/services/permanent-residence/apply-permanent-residency-permit Date of

access: 20 Jul 2019.

South African Citizenship Act see South Africa.

Southern Rhodesia. 1943. Soldier v Commissioner of Taxes 1943 SR 130.

Southern Rhodesia. 1960. H v Commissioner of Taxes (SR) 24 SATC 738.

Tax Administration Act see South Africa.

Taxation Laws Amendment Act see South Africa.

J.P.P. 2013. Why is South Africa included in the BRICS? – It’s not the BRIC, so why is it one of

the BRICS? https://www.economist.com/the-economist-explains/2013/03/29/why-is-south-

africa-included-in-the-brics Date of access: 23 Sep 2019.

Thompson, K. 2015. Positivism and interpretivism in social research.

https://revisesociology.com/2015/05/18/positivism-interpretivism-sociology/ Date of access:

23 Mar 2019.

Thomson v Minister of National Revenue see Canada.

Trade Economics. 2019. List of countries by personal income tax rate.

https://tradingeconomics.com/country-list/personal-income-tax-rate Date of access:

10 Feb 2019.

84

United Kingdom. 1983. Shah v Barnet London Borough Council and Others Appeals 1 ALL ERS

226 (HL).

United Kingdom Government. 2019. UK residence and tax. https://www.gov.uk/tax-foreign-

income/residence Date of access: 17 Aug 2019.

United Nations. 2017. Department of economic and social affairs. International migration report

2017. highlights.

http://www.un.org/en/development/desa/population/migration/publications/migrationreport/docs/

MigrationReport2017_Highlights.pdf Date of access: 6 Mar 2019.

United Nations. 2017. Model double taxation convention between developed and developing

countries. https://www.un.org/esa/ffd/wp-content/uploads/2018/05/MDT_2017.pdf Date of


Vocabulary.com. 2019. Ontology. https://www.vocabulary.com/dictionary/ontology Date of

access: 22 Mar 2019.

Williams, R.C. 2005. Income tax in South Africa: cases and materials. 2nd ed. Durban: Lexis

Nexis.

Zanayriha, P. 2019. Sharp rise in number of South Africans leaving the country. City Press.

17 Jan. https://city-press.news24.com/News/sharp-rise-in-number-of-south-africans-leaving-the-

country-20190117 Date of access: 16 Apr 2019.

An analysis of ceasing to be tax resident in South Africa ...

Documents

Transcript of An analysis of ceasing to be tax resident in South Africa ...