Ceasing tax residency in South Africa is a big step to take. If tax emigration from South Africa is something you’re currently evaluating, there are a number of important things you need to know in order to make the best possible decision for your particular circumstances.
What is tax emigration from South Africa?
Before you can decide if you want to do it, it’s important to know what *it* is. Tax emigration is the process by which you notify the South African Revenue Service (SARS) that you no longer meet the requirements to be considered a tax resident in South Africa, and that they should update your status to non-resident, for tax purposes.
What are the advantages and disadvantages of tax emigration from South Africa?
Advantages of tax emigration/non-resident status
- You streamline your tax affairs by becoming a tax resident of the country in which you’re earning a foreign income.
- You terminate your obligation to pay tax on your foreign employment income in South Africa.
- You become eligible to cash in your retirement annuity before 55, once you have maintained tax non-resident status for at least three years.
Even after you complete tax emigration you can still:
- Own property in South Africa as a non-resident
- Keep your South African passport and citizenship
- Inherit money from South Africa
Cashing in your South African retirement annuity before 55
- Once you have become a non-resident for tax purposes and you have maintained this status for a minimum of three years, you will be eligible to activate the withdrawal benefit on your retirement annuity.
- As a non-resident you can encash your retirement savings, and once you have paid the tax on lump sum withdrawals to SARS, you are free to transfer the proceeds abroad to use as you please.
- This gives you the means to protect your retirement savings from the volatility of the Rand by moving your savings out of South Africa.
Disadvantages of tax emigration from South Africa
- Once you become a non-resident for tax purposes, you become liable to pay Capital Gains Tax (CGT) in order to exit the South African tax system.
- It is not an immediate ticket to access your retirement annuity funds, you will still have to wait three years after completing tax emigration in order to access your funds earlier than 55.
Does South Africa have an exit tax?
In a residence-based tax system, residents are taxed on their worldwide income, regardless of where it was earned. When a taxpayer chooses to emigrate, according to SARS, that individual is deemed to have sold all their worldwide assets for market value on the day they cease to be a tax resident. The tax that becomes payable on this deemed disposal is known as an exit tax, or exit charge. Effectively, it is SARS taxing you one last time on your way out.
When is this exit tax due?
It is due the day before the taxpayer becomes a non-resident for tax purposes. On this day they are deemed to have disposed of their worldwide asset base at market value which triggers a CGT event.
Some things to note about this exit tax
CGT is not a separate tax event but rather an extension of income tax. Once you have ceased to be a South African tax resident, you will no longer be taxed in South Africa on your worldwide income but only on income sourced in South Africa.
- When you change your tax status from resident to non-resident by choosing to emigrate, SARS will treat this as an additional period of assessment that is due during the tax year.
- SARS will need you to submit a provisional tax return if your taxable income exceeds R1 million in that tax year.
- If there has been an actual sale, assets are viewed at market value and the tax becomes due on the day that you leave, even if the tax year has not yet ended.
What are the requirements for tax emigration from South Africa?
You will need to submit a signed declaration that substantiates your basis for qualification, along with a motivation letter that presents the facts and circumstances in support of your disclosure. You must also include a copy of your passport, and itinerary.
Additionally, you must also fulfill the following specific requirements:
- Provide SARS with the type of visa you have for the country you’re migrating to
- Furnish details on the new country of residence
- Provide a certificate of foreign tax residence
- Disclose details of where your family is located
- Disclose the location of any property/assets remaining in South Africa
- Disclose details of social interests and any return visits.
What happens if you don’t pay the exit tax on your tax emigration?
SARS will catch up with you eventually and with penalties of up to 200%, it’s not something you should ignore. Seek objective, professional tax advice to ensure you’re best prepared to handle the tax implications of emigrating from South Africa.
FinGlobal: tax emigration specialists for South Africans
If you need help making the big decisions around tax emigration and moving your money out of South Africa, FinGlobal is ready to help. To date, we have provided assistance to clients in more than 105 countries, and we’d like to offer you the same convenient, reliable services in handling all aspects of your cross-border financial portfolio.
Interested in hearing how we can help you make your next money moves? Leave us your contact details and we’ll be in touch.