Financial emigration is not a requirement for tax emigration, nor does it trigger or guarantee tax emigration or tax status for non-residents.
How does foreign employment affect South African expats
Financial emigration is exactly what it says, it is a change of financial status that you can choose to undergo if you have left SA to take up a permanent residence outside the CMA [Common Monetary Area – SA, Namibia, Lesotho and Swaziland].
It is correct that the financial emigration process of the SARB is subject to filing a tax clearance to confirm a good tax standing, that all returns have been filed and that all taxes are paid or provided upon departure. With some exclusions.
Financial emigration is not a tax emigration requirement, nor does it trigger or guarantee tax emigration or non-resident tax status. Product providers or financial emigration specialists, are misleading taxpayers who are now promoting financial emigration at all cost or as the ultimate solution to escape the new #Tax2020 rules.
Yes, the minute your selected advisor suggests that financial emigration is NOT an option, it’s a pre-requisite or a way to tax emigrate, be sure to get a second opinion from a tax specialist like ourselves who doesn’t earn our fees from the financial emigration process.
So what is the taxpayers’ best solution or option available?
No one solution can be found for everyone. The answer is in client-specific tax profiling and in recent years the following tax issues and profiles have been identified by FinGlobal’s team.
Expats without tax-exempt amounts
It has been apparent, how many expat South Africans have incorrectly believed that they have been and will continue to enjoy tax exemption on their foreign income, not having emigrated tax (i.e. they are tax residents or considered tax residents).
The act is rather clear, and interpretation Note 16 (Issue 2) [IN16] stipulates that the exemption is limited to remuneration from foreign employment, whereas passive and business income remains fully taxable for as long as one is a tax resident in SA.
- Passive income and independent contract income are not eligible for a tax exemption;
- Calculation of the Days Test of the 183/+60-day exemption;
- If you qualify for an exemption, working days in South Africa will not be exempt.
Tax emigrated expats
Many expatriates have emigrated a few years ago, but they have failed to notify SARS and, more importantly, they have failed to pay the exit tax. Their tax exposure, penalty and interest liability now faced my actually have a greater cashflow impact than the new #Tax2020 rules.
Tax on pay at source
Working in a country that does not tax you on worldwide income, yet you are taxed from employment on local income. These tax systems rely on source-based rules to collect tax against immigrant or guest employee, yet most taxpayers didn’t even know their employers paid the source tax on their behalf, taxpayers are advised to ask their employers about the taxes they pay on their behalf, since SARS will allow a foreign tax credit. This rule applies to both treaty and non-treaty countries.
There are, in fact, a small number of expatriates who have no other choice, but to adjust their lifestyle because, as of 1 March 2020, their new net after-tax revenues will have to be adjusted.
- Independent contractors do not receive “pay” and as a rule, are not eligible for the exemption. Therefore, a person must be an employee who receives salary to qualify for the exemption.
Ship officials and crew
The tax exemption for natural persons working on a ship is governed by a separate set of rules. In fact, there is a separate Interpretation Note 34, which covers water staff. The rules set out in Interpretation Note 16 (Issue 2) must be applied by employees on the ship, not involved in the passage or navigation of the shop (mining and exploration personnel, as well as on-board shop operators).
- The 183 days are determined for crew and officers on a year of tax, other foreign workers are testing their days outside in any twelve months; and
- The 60 day rule is to qualify for a continuous day that is not applicable to crew or officers on a vessel that carry passengers for rewards, and
- Ship crew and officers will not be subject to proportional tax on the days spent in SA, whereas an employee qualifying under the normal foreign employment exception, will have to pay SA tax on the days employed in SA, i.e. they only enjoy a proportional exemption; and most importantly
- As explained in Interpretation Note 34, the crew and officers are eligible for the exemption will not be subject to the R1m exemption cap.
Up to now SARS guidelines issued
Sadly, one year after the promulgation of the new act and less than a year away from implementation, SARS has not issued any new or revised guidelines. The updating of SARS guides and interpretation notes are unfortunately, notoriously slow.
Hopefully, SARS will soon release the 3rd version on Interpretation Note 16 and will even consider updating Interpretation Note 34, and will give clear guidelines on Exit Tax.
FinGlobal: South African financial emigration specialists
We’ve made financial emigration and international transactions our entire business, and we exist to make the entire process as smooth as possible for you., FinGlobal’s team of compliant, accredited financial experts are here to help. Get in touch, and let’s get your money moving.