Financial emigration. Tax emigration. Relocation emigration. It all sounds overwhelming and confusing, right? It doesn’t have to be. There is a time and a place for every process, so let’s take a look at what you need to know about updating your exchange control and tax residency status when leaving South Africa permanently.
Tax emigration vs financial emigration: what’s the difference?
Before 1 March 2021, financial emigration, also known as formal emigration, was the official process by which emigrants could wrap up their financial affairs in South Africa. It updated their exchange control status from resident to non-resident, and allowed immediate access to cash in their Retirement Annuity (RA) savings. Before it was phased out, financial emigration was handled by the South African Reserve Bank who oversees all exchange control matters. Financial emigration was replaced with tax emigration, which is now overseen by the South African Revenue Service (SARS), as leaving the country has tax implications that are important from a revenue collection perspective.
Financial emigration was never compulsory, while tax emigration is essential if you wish to avoid paying tax in South Africa on your foreign employment income. Tax emigration is now also the only means by which you can access your RA funds before the age of 55. Unlike financial emigration, tax emigration does not enable instant access to your retirement annuity, and you must maintain tax non-resident status for a minimum of three years before you are eligible for early withdrawal.
Tax emigration vs financial emigration, in summary:
|SOUTH AFRICAN REVENUE SERVICE
|SOUTH AFRICAN RESERVE BANK
|AFTER 01 MARCH 2021
|BEFORE 28 FEBRUARY 2021
|Amend tax residency status from resident to non-resident.
|Amend exchange control status from resident to non-resident.
|Cease to be a resident declaration
|End tax liability on foreign employment income. Withdraw retirement funds after three years.
|Wrap up financial affairs in South Africa. Immediate access to withdraw retirement funds.
|Triggers exit tax/Capital Gains Tax liability in certain circumstances.
|No longer a tax resident of South Africa.
|No longer an exchange control resident of South Africa.
The SARS Emigration Tax Clearance Certificate has now become the Emigration Tax Compliance Status (TCS) PIN
You will need to show the tax authority that you no longer have any ties with South Africa, and that you have fulfilled your tax obligations. No longer issuing physical certificates, SARS now works with a digital system called the Tax Compliance Status system (TCS system). The new TCS system gives you the ability to get a TCS PIN to verify your tax compliance status in real time, which is more reliable than the manual Tax Clearance Certificate system.
Here’s how to complete the SARS tax emigration process.
The SARS Emigration Tax Compliance Status – Emigration (TCS) PIN
You will receive notification of your successful completion of the tax emigration process by way of a TCS PIN. This serves to indicate that you are compliant with SARS at this point in time because you have declared your remaining South African assets and sorted your ‘exit tax’. However, this PIN is only valid for one year after it has been issued.
The SARS non-resident tax status confirmation letter
Because the Emigration TCS PIN is only valid for one year, SARS is now issuing confirmation of tax non-residency letters. If you do not yet have this letter, it means you have not yet officially changed your status to tax non-resident with SARS, and you should rectify that as soon as possible.
FinGlobal: financial migration specialists
Unsure of your tax status with SARS? Need a hand with ceasing your tax residency in South Africa? FinGlobal can help. We’ll provide clarity on the financial emigration vs tax emigration debate, and advise you on exactly what you need to do to ensure that you are compliant with SARS. We can also assist you with the encashment of any remaining retirement annuity savings in South Africa, and help you to transition your finances abroad, smoothly and without hassle.
Leave us your contact details in the form below and we’ll be in touch to discuss your requirements.