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Is tax emigration a requirement for expats to transfer funds from South Africa?

By August 5, 2022November 24th, 2022FinGlobal

Is tax emigration a requirement for expats to transfer funds from South Africa?

August 5, 2022

As a South African living abroad, transferring funds from South Africa can be riddled with red-tape and frustration if one is not aware of the nuances of the exchange control regulations.

Even though these regulations have been relaxed somewhat, there are many variables to take into account to ensure that an international money transfer from South Africa can be facilitated quickly and efficiently.

A common misperception is that an expat is required to formalise their tax emigration with the South African Revenue Service (SARS) to transfer funds from South Africa. This is not always the case – let’s delve into a few scenarios to better understand the lay of the land.

Tax emigration

Transfer funds from South Africa as an expat temporarily abroad

Many South Africans living and working abroad have a firm intention of returning to South Africa at a future date. Whether they are on a temporary work assignment or a contract basis, South Africa remains their primary place of residence. In the eyes of SARS and the South African Reserve Bank (SARB), this is coined as a South African resident temporarily abroad.

These individuals will still meet the requirements  to be classified as South African tax residents and will not be able to complete a tax emigration. As such, these individuals have two allowances with which to transfer funds from South Africa, regardless of the source of the funds.

The two allowances that are available are the Single Discretionary Allowance and a Foreign Investment Allowance. Both allowances, are available every calendar year.

  • SDA – A total sum of up to R1 million is freely transferable, without the need for a tax clearance obtained from SARS.
  • FIA – A total sum of between R1 and R10 million can be remitted via a foreign investment allowance, provided that a Foreign Investment Tax Compliance Status (TCS) is obtained from SARS prior to the transfer.

If the transfer amount is more than R10 million, a special application must be submitted to SARB and will be subject to a strict risk management process.

Transfer funds from South Africa as an expat living abroad permanently

South African expats that reside abroad permanently can be divided into two groups with regards to transferring money abroad – (1) those who have formally emigrated or ceased tax residency (also known as tax emigrated individuals) with SARS and (2) those who are still classified as South African tax residents.

  • Those who have formally emigrated or ceased tax residency

In the scenario where an individual has completed a formal or a tax emigration from South Africa and has successfully changed their tax residency to a non-resident taxpayer, special regulations apply. An important difference between tax non-residents and tax residents, is that tax non-residents cannot avail of their SDA allowance.

During the tax emigration application, individuals apply for an Emigration Tax Compliance Status. This tax certificate is essentially a declaration of any and all assets that the taxpayer has left in South Africa and SARS utilises the application to ensure that all funds originated from legitimate sources. The validity of the tax clearance certificate is 12 months.

After the validity term has expired and a non-tax resident has liquid funds to repatriate from South Africa, they will be required to avail of their Foreign Investment Allowance (regardless of the value of the transfer), meaning that an application for a Foreign Investment Tax Compliance Status must be obtained before each transfer.

  • Those who are still classified as South African tax residents

There are a couple of reasons why expats residing permanently abroad might not have completed a tax emigration yet. They might still meet some of the requirements to be classed as a South African tax resident, they might have recently emigrated and still need to kick off the application process or they might have left South Africa decades ago when the residence-based tax system was not yet enacted, meaning that tax emigration was not a requirement at the time.

In this scenario, these individuals can avail of the allowances as described in the section applicable to expats temporarily abroad, see above.

Inheritance – a unique scenario

If an expat is named a beneficiary on a South African estate and is due to receive funds from that estate, the rules are slightly different in comparison to the transfer of other capital assets and cash in the bank.  If an individual has formally/tax emigrated and holds a taxnon-resident classification at SARS (regardless of the value of the inheritance), the funds are freely  transferrable abroad.

On the other hand, expats who have not yet formalised their emigration, can avail of their Single Discretionary Allowance or Foreign Investment Allowance to transfer the funds. The allowance that needs to be utilised will depend on the amount that will be received from the estate.

Transfer of funds from South Africa depend on circumstances and won’t always require a tax emigration

It is clear that to transfer funds from South Africa as an expat, it won’t always be necessary to complete a tax emigration with SARS. Circumstances differ, and it is very important to understand the exchange control regulations and how it pertains to everyone’s unique situation to achieve quick and efficient international money transfers from South Africa.

FinGlobal – the partner of choice for expats

FinGlobal is the partner of choice for thousands of expats that need assistance with repatriating money from South Africa. Grasping the legislative framework and applying it to your own circumstances can be a daunting task – at FinGlobal we aim to simplify processes for our clients to ensure accurate and efficient solutions. To find out more about how we can assist you with transferring funds from South Africa, finalising tax emigration applications or assisting with tax compliance applications, contact us today.

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