While purchasing a home does not automatically restore tax residency, it may influence how Sars assesses an individual's status, with potential consequences for offshore investments, retirement savings and other foreign-held assets.
"There's an important distinction between citizenship and tax residency. You can be a South African citizen without being a tax resident, but returning to live here may change that status. It can be a complex area of tax law, particularly when someone has financial interests in more than one country," he explains.
This distinction is important because South Africa generally taxes residents on their worldwide income, subject to applicable exemptions and relief, while non-residents are taxed only on income sourced within the country.
Sars applies two tests to individuals: whether a person is "ordinarily resident" in South Africa, and a physical presence test based on the number of days spent in the country over several years.
For people returning after a long period abroad, the ordinary residence test is usually the one that matters, as it looks at whether South Africa has again become their real home.
Although buying a home does not automatically re-establish tax residency, it may be one of the factors S conarssiders in making that assessment.
For returning South Africans, the timing of when tax residency resumes can have significant financial consequences.
Residency can begin part-way through a tax year, from the date a person becomes ordinarily resident again.
"Someone who has spent years working abroad may have accumulated investments, retirement savings or property overseas. Once they become a South African tax resident again, the income generated by those assets may fall within the local tax net. Understanding the implications before relocating is essential," says Janse van Rensburg.
Janse van Rensburg highlights several tax and financial considerations for South Africans planning to return:
Tax residency: Determine when South African tax residency may resume and how this could affect worldwide income and reporting obligations.
Offshore investments: Review foreign assets, investment income and potential capital gains tax implications.
Offshore companies and trusts: Assets held through foreign companies or trusts may be subject to specific anti-avoidance rules once the individual is resident again.
Retirement savings: Understand how overseas pensions, retirement funds and benefits are treated for South African tax purposes. Some foreign pensions relating to services rendered abroad may qualify for exemption.
Property purchase costs: Budget for transfer duty or Vat, where applicable, and other transaction and ownership costs.
Source of funds: Check banking, reporting and exchange-control requirements when transferring money from overseas.
Double taxation agreements: Determine whether an applicable agreement affects the taxation of income or residency.Those who previously emigrated financially, or more recently had their non-resident status verified by Sars (the process that replaced financial emigration in March 2021), may also need to review their banking arrangements and ensure their tax affairs and records are up to date.
Janse van Rensburg cautions against assuming that income already taxed overseas will automatically be exempt from tax in South Africa. "Double taxation agreements and foreign tax credits can provide relief, but the rules vary depending on the type of income and the countries involved. Paying tax elsewhere doesn't necessarily eliminate your South African tax-reporting obligations."
The timing of a return may also have capital gains tax implications for offshore assets. When an individual becomes a South African tax resident, their assets are generally treated as having been acquired at market value on that date, other than assets already within the South African tax net, such as local property.
Obtaining market valuations of offshore assets on the date tax residency resumes can therefore be valuable, as these establish the base cost for calculating future South African capital gains tax.
"Returning home is a significant financial decision, particularly for South Africans who have built up assets overseas. Buying property is only one part of the picture, and understanding the tax implications before making the move can help avoid unexpected liabilities," says Janse van Rensburg.
