The South African tax implications of ceasing to be resident

• Main Author: Walker, Anthony Howard
• Format: Others
• Language: English
• Published: Rhodes University 2017
• Online Access: http://hdl.handle.net/10962/5555

In the context of rapid globalisation, skilled South African employees and professionals are often attracted overseas to take up new work opportunities in foreign countries. This may cause these individuals no longer to be “ordinarily resident” in South Africa. At the same time, changes in modes of travel, information and communication channels could result in companies and trusts no longer being considered to be tax resident in South Africa, if the place of effective management for these entities is moved to a foreign country and a double taxation agreement between South Africa and that foreign country deems these entities to be exclusively resident in the foreign country. The objective of this thesis was to analyse the tax implications that could arise when a resident natural person, trust or company ceases to be a resident or when a Controlled Foreign Company (CFC) ceases to be a CFC. A detailed analysis of the “exit charge” in section 9H of the Income Tax Act was undertaken to understand its normal tax implications when a natural person, trust or company ceases to be a resident or a CFC ceases to be a CFC. This included an analysis of how a natural person, trust or company ceases to be resident or how a CFC ceases to be a CFC. It was found that certain normal tax principles consistently apply to when a natural person, trust or company ceases to be resident or a CFC ceases to be a CFC. At the same time, certain unique normal tax implications arise for trusts and CFCs since they are impacted by the special tax rules that apply to these entities. Furthermore in the case of a trust, a judicial precedent has established that the “exit charge” remains and is taxable in the trust. For CFCs, there is uncertainty as to whether the “exit charge” could arise when a shareholder ceases to be resident, which results in residents no longer holding more than 50% of the total participation or voting rights in that foreign company.