Determining your tax residency status is a fundamental step in understanding your South African tax obligations. SARS uses two primary tests to establish whether an individual is a tax resident: the Ordinary Residence Test and the Physical Presence Test. Each test has distinct criteria and implications for how your worldwide income is taxed. This detailed blog explains both tests, their requirements, and how they impact taxpayers in South Africa.
Why Tax Residency Matters
South African tax residents are taxed on their worldwide income, whereas non-residents are only taxed on income sourced within South Africa. Correctly determining your residency status helps avoid double taxation and ensures compliance with SARS.
The Ordinary Residence Test
This test considers where your true, fixed, and permanent home is located—the place you regard as your usual or principal dwelling.
- Focuses on intention, lifestyle, and personal ties.
- Factors include family location, business interests, social and economic ties.
- Requires evaluation of whether South Africa is your primary home or if you have established residency elsewhere.
- This test is subjective and based on facts and circumstances.
The Physical Presence Test
This test is objective and based on the number of days you spend in South Africa.
- You must be physically present in South Africa for at least 91 days in the current tax year.
- At least 915 days during the preceding five tax years combined.
- You must have been physically present for at least 91 days in each of those five preceding years.
- If all these conditions are met, you are considered a tax resident, even if you do not pass the Ordinary Residence Test.
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Implications of Tax Residency
- Residents are liable for tax on worldwide income, including foreign earnings.
- Non-residents are taxed only on South African-sourced income.
- Tax residents must submit annual tax returns declaring global income.
- Understanding residency helps claim relief under Double Taxation Agreements (DTAs).
Common Scenarios
- New Arrivals: May become tax residents if they meet either test during the year.
- Expatriates Leaving South Africa: May cease residency based on these tests and qualify for split-year tax treatment.
- Frequent Travelers: Should track days spent in South Africa carefully to avoid unintended residency.
How to Prove Residency or Non-Residency
- Keep travel records, including entry and exit dates.
- Document ties to South Africa such as property, family, or employment.
- Obtain SARS residency confirmation if needed.
- Seek professional tax advice for complex situations.
Conclusion
The Ordinary Residence and Physical Presence tests are critical in establishing your tax obligations in South Africa. Accurate determination of tax residency ensures compliance, optimizes tax liabilities, and helps avoid penalties.
For expert guidance on tax residency status, international tax planning, and SARS compliance, consult experienced South African tax professionals.
