It has become the norm for expatriates to cease their tax residency through financial emigration, but most expatriates don’t know that financial emigration is not the last step in the process. This is where the deregistration of tax residency comes in.
What is the difference between financial emigration and deregistration of SARS tax profile?
When individuals financially emigrate, it is important to note that they are not cutting ties with SARS and must continue submitting returns to SARS to declare any South African sourced income. Many expatriates are under the misconception that when they finalise their financial emigration, that they will automatically be deregistered with SARS. This is incorrect, because financial emigration and deregistration are two different processes that need to be undertaken.
To deregister as a tax resident means that you are cutting all financial ties with SA and ending all obligations to SARS and do not have to submit anything to them again, as you will not be registered as a South African taxpayer anymore.
The criteria that must be met before an individual can deregister with SARS.
The expatriate that wishes to deregister with SARS needs to prepare themselves for a long and time-consuming process that will take between 8 to 18 months to formally finalize. Before the individual can deregister their tax residency, they first must financially emigrate (cease their SA tax residency once off), then they will have to make sure that they do not have any remaining assets, liabilities, incoming inheritance, or credit in South Africa before they can start the deregistration process.
This means that the individual needs to dispose of their properties, cars, trusts, shares, and retirement policies. The individual must also make sure that they do not have any debt in South Africa which can include – bank accounts, credit card debt, clothing accounts, all financial debts or interests need to be paid off and closed off. It is important to note that the individual cannot reside in South Africa anymore if they wish to deregister their tax residency.
The individual needs to be fully compliant with SARS before they are allowed to deregister as a tax resident. To reflect as compliant the last 5 year’s tax returns need to be submitted, there must be no refund due to you or liability owing to SARS). And most importantly you must have disposed of all your assets in SA, that can trigger tax obligations (inclusive of bank accounts, policies, RA’s, etc.).
What documents need to be submitted to SARS.
With deregistration being an arduous and time-consuming process, it can quickly become overwhelming to the individual that isn’t well versed in financial emigration and tax related matters. SARS will request many documents that need to be approved in the deregistration process.
It is in the best interest of the individual to consult specialist tax practitioners and tax attorneys who can undertake the deregistration process on their behalf. Obtaining assistance from tax professionals can avoid any pitfalls that the individual might face during their deregistration process, giving the individual much needed peace of mind that their complicated tax affairs are being handled by experts.