Resident Definition as per Section 1 of the Income Tax Act, 1962 - Layman Version

Understanding Who is a ‘Resident’ for South African Tax Purposes

• Being a ‘resident’ for tax purposes in South Africa is crucial because it determines how your income is taxed. Generally, South African residents are taxed on their worldwide income, while non-residents are only taxed on income earned from a South African source.
• The law defines a “resident” in two main ways: for natural persons (individuals) and for other persons (like companies or trusts). There are also specific rules about when you stop being a resident or when double taxation agreements apply.

For Natural Persons (Individuals)

• A natural person is considered a resident if they meet either of the following two criteria:

You are ‘Ordinarily Resident’ in South Africa [1(a)(i)]:

• • This generally means South Africa is your usual or habitual home. It’s where you return to after your travels, where your family and main economic interests are, and where you consider your permanent abode to be. The sources provided do not further define “ordinarily resident,” but this is the general understanding in tax law.

You Meet the ‘Physical Presence’ Test [1(a)(ii)]:

• • This test applies if you are not ordinarily resident in South Africa but spend a significant amount of time here. You will be considered a resident if you were physically present in South Africa for:
  • More than 91 days in total during the current tax year [1(a)(ii)(aa)].
  • More than 91 days in total during each of the five tax years immediately before the current tax year [1(a)(ii)(aa)].
  • More than 915 days in total during those same five preceding tax years (this is an aggregate total) [1(a)(ii)(bb)].

Important Note on ‘Days’ for Physical Presence:

• • • A “day” includes any part of a day you are in South Africa [4(A)].
    • However, days you spend in transit through South Africa between two places outside the Republic are not counted, provided you do not formally enter South Africa through a “port of entry” (like an airport or border post) [4(A)].

When You Become a Resident Under the Physical Presence Test:

• • • If you meet the physical presence test, you are considered a resident from the very first day of that current tax year.

When You Can Stop Being a Resident (330-Day Rule):

• • • Even if you qualify as a resident under the physical presence test, you will be deemed not to have been a resident from the day you last left South Africa if you remain physically outside South Africa for a continuous period of at least 330 full days immediately after you left [5(B)]. This rule can effectively reverse your resident status for the period you were present in South Africa if you meet the continuous absence requirement afterwards.

For Other Persons (Non-Natural Persons like Companies, Trusts, etc.)

• • An entity (other than an individual) is considered a resident if it meets either of the following criteria:
    • It was incorporated, established, or formed in South Africa [6(b)].
    • It has its place of effective management in South Africa [6(b)]. This generally means where the key management and commercial decisions necessary for the conduct of the entity’s business are, in substance, made.

Special Note for Foreign Investment Entities: When determining if a “foreign investment entity” has its place of effective management in South Africa, certain activities related to financial services (as defined by the Financial Advisory and Intermediary Services Act, 2002) carried out by a licensed financial service provider are not considered [7(a), 7(b)].

 

Important Exclusions and Cessation of Residency Double Taxation Agreements (DTAs) Override:

• • Even if you meet the above definitions, you are not considered a South African resident if you are deemed to be exclusively a resident of another country under a Double Taxation Agreement (DTA) between South Africa and that other country. DTAs are international agreements designed to prevent the same income from being taxed twice in different countries.

Cessation of Residency During a Tax Year:

• • If a person who is a resident stops being a resident during a tax year, they are regarded as not being a resident from the day on which they ceased to be a resident.