PART 3: BEYOND THE MOVE – RAV01, EXIT TAX AND THE ROAD TO NON-RESIDENCY
By Rizquah Mohamed and Mbuyisile Nukeri
Relocating abroad is a physical event. Becoming non-resident for South African tax purposes is a legal and tax event, and the two do not necessarily happen at the same time.
While many taxpayers focus on the move itself, formally becoming non-resident requires engagement with SARS and careful consideration of the resulting tax implications.
This article, the third in our Navigating Tax Residency Cessation series, focuses on the practical process of formalising non-resident status with SARS and highlights one of the most significant tax consequences that may arise: the potential application of section 9H of the Income Tax Act.
For many years, taxpayers commonly referred to the process as “financial emigration”. However, financial emigration, as administered through the South African Reserve Bank (“SARB”), was phased out with effect from 1 March 2021. While exchange control considerations may still arise when funds are transferred offshore, the formalisation of non-resident tax status is now primarily a tax process administered by the South African Revenue Service (SARS).
The RAV01 Process
Formalising non-resident tax status with SARS requires updating the Registration, Amendments and Verification (RAV01) form on eFiling, settling any exit tax liability (capital gains on a deemed disposal of worldwide assets), and submitting the required supporting documents, including a signed declaration, travel diary and foreign tax certificate.
The taxpayer should capture the date on which they ceased to be a tax resident under the Income Tax Liability Details section. This date will be regarded as the day on which the taxpayer becomes a non-resident for tax purposes. Once this has been actioned on the RAV01, a case number will be created and the taxpayer will receive a letter from SARS requesting supporting documents.
Importantly, the RAV01 process does not create non-resident status simply because a date has been captured on eFiling. That date must be supported by the taxpayer’s actual circumstances and the applicable residency test. In an environment of increasing SARS scrutiny, the strength of the underlying position matters as much as the administrative process used to record it.
Supporting Documentation
The documentation required by SARS will vary depending on the taxpayer’s particular circumstances and the basis upon which tax residency ceased. Generally, SARS requires evidence demonstrating that the taxpayer no longer regards South Africa as their ordinary place of residence or proof that the relevant tie-breaker clause of a Double Taxation Agreement (“DTA”) finds application, allocating exclusive tax residency to the other country which is party to the DTA. SARS and the courts generally consider elements such as:
- The type of visa on which you have entered the foreign country;
- Proof of permanent residence in the foreign country (if applicable);
- A certificate of tax residence from the foreign revenue authority or a letter from the authority indicating that you are regarded as a tax resident in that country (if available);
- Details of any property that you may still have available in South Africa and the purpose for which such property is being used;
- Details of any business interests (e.g. investment and employment) that you may still have in South Africa;
- Details of your family, whether any family members remain in South Africa and the reasons therefor;
- Details of your social interests (e.g. gym contracts, recreational clubs and societies) and the location of your personal belongings; as well as
- Details of any return visits to South Africa, their frequency and the reasons for undertaking such visits.
One of the most important aspects of the process is determining the correct cessation date. The date on which a taxpayer departs South Africa will not necessarily be the date on which tax residency ceases. Instead, the cessation date must align with the taxpayer’s facts and the relevant residency test. An incorrect date can lead to unnecessary disputes and unintended tax consequences.
Section 9H “Exit Tax”
While taxpayers often focus on the administrative aspects of the RAV01 process, the more significant consideration is frequently the application of section 9H, commonly referred to as “exit tax”.
This is where a change in tax residency can have an immediate financial consequence, even though the taxpayer has not actually sold anything.
Broadly speaking, section 9H deems an individual to dispose of certain worldwide assets at market value immediately before ceasing South African tax residency. Although no actual sale takes place, the deemed disposal may trigger a capital gain and, consequently, a capital gains tax liability. The purpose of these provisions is to allow South Africa to tax the growth in value that accrued while the taxpayer was tax resident before South Africa potentially loses its future taxing rights over those assets.
The section 9H deemed disposal rules can potentially apply to a wide range of worldwide assets. In practice, many taxpayers are surprised to learn that assets held outside South Africa may still be relevant when calculating their exit tax exposure.
The following assets are included for exit tax purposes:
- Foreign immovable property;
- Shares, unit trusts and similar investments;
- Crypto assets and similar investments; and
- Certain interests held through trusts.
The following assets are excluded from exit tax calculations:
- South African immovable property;
- Assets attributable to a South African permanent establishment;
- Any qualifying equity share granted to the person less than five years before the date they cease to be a resident;
- Any qualifying equity share that had not yet vested at the time that a person ceased to be resident;
- Cash;
- Personal use assets (such as vehicles, art and jewellery); and
- Any amount representing the value of an interest in any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund.
Once a person has ceased to be a tax resident in South Africa, that person is no longer taxed in South Africa on their worldwide income, but only on South African-sourced income (and such South African-sourced income may be exempted under numerous exemptions available to non-residents).
The practical lesson is that tax residency cessation should be approached as a tax event, not simply an administrative consequence of emigration. The residency position, cessation date, supporting evidence, potential section 9H liability and on-going taxation of South African-sourced income are interconnected, and each needs to be considered before the process is formalised with SARS.
One of the most common misconceptions is that tax residency ceases automatically once a person leaves South Africa. In reality, becoming non-resident requires a careful assessment of the applicable legal tests and, in most cases, substantial supporting evidence.
At Arro, we assist clients with all aspects of the tax residency cessation process, from assessing residency status and supporting RAV01 submissions to evaluating section 9H exit tax exposure and broader cross-border tax considerations. Our objective is to ensure that the process is both technically robust and practically manageable.
If you would like assistance in assessing your tax residency position or navigating the cessation process, visit Arro or contact Lauren at lauren@arro.co.za to discuss your circumstances.
