How tax residency affects your ability to receive an SA inheritance

The finalisation of a deceased estate is a time-consuming and frustrating process for South Africans. There is additional complexity and exasperation when one of the heirs is an expatriate.

When you live outside South Africa and inherit from a South African source, you are required to have placed your emigration on file in order to receive that inheritance. Expatriates need to show proof of their non-tax residency and compliancy status to be able to receive their inheritance abroad.

To be noted as a non-tax resident, you will have to go through a formal declaration process with the South African Revenue Service (Sars), whereby you need to prove your non-residency based on the qualifying criteria.

Ceasing tax residency

To be able to prove your non-residency and formally cease your tax residency, you need to go through the financial emigration process if you meet the criteria.

This is a once-off process whereby taxpayers can cease their tax residency if they intend to relocate to another country permanently. If you intend to reside abroad permanently and the intention can be substantiated objectively, you will break the ordinarily resident test and qualify to cease your tax residency.

In 2001, South Africa dissolved the source-based tax system and replaced it with a residency-based taxed system. Under the new system, you can be classified as a resident or a non-resident for tax purposes. A resident for tax purposes is taxed on their worldwide income, and a non-resident for tax purposes is taxed on their income derived from a source within South Africa.

When an individual was never ordinarily resident in South Africa, the physical presence test is applied to determine whether that individual is a tax resident in South Africa. In terms of this test, an individual must be present in South Africa for a period or periods exceeding 91 days in aggregate during the current year of assessment and exceeding 91 days in aggregate during each of the five years of assessment preceding the current year of assessment and exceeding 915 days in aggregate during the five years of assessment preceding the current years of assessment.

This test is regarded as a secondary test to the ordinarily resident test.

The onus is always on the taxpayer to prove to Sars that you qualify for the above options.

This is a complicated and technical process that is best done through professionals who are experienced in this area.

Releasing the inheritance

Once you have declared your formal emigration and it has been approved by Sars, you will be issued with an emigration tax clearance status PIN that will be used as a clearance certificate to release the inheritance and may be used to remit your inheritance abroad.

The inheritance funds are blocked, and the taxpayer is required to fulfil this obligation before the inheritance can be received.

There is no inheritance tax on the individual in South Africa. However, the inheritance must be declared to Sars, for both South African tax residents and tax non-residents.

Victoria Lancefield is general manager of financial emigration and tax residency, and Martin Bezuidenhout is an expatriate tax attorney at Tax Consulting SA.

Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.