If you have financially emigrated before 2021 it does not mean that you have ceased your tax residency with SARS.
It is clear that there is a rapidly-increasing trend of South Africans leaving the country due to intolerable load shedding and a deepening economic crisis. It is estimated that since 2010 almost one million South Africans have relocated abroad. While permanent relocation through emigration does offer an attractive escape from many of our problems, it must be pointed out that although you can leave most of your troubles and worries behind when you board that international flight, the South African Revenue Service (SARS) will not be one of them. Your tax obligation will follow you wherever you go.
Expats: you are a tax resident until SARS acknowledges your status change to non-resident
Whether you’ve already physically emigrated, or you’re still planning your relocation, one of the most critical things to know is that SARS will still expect you to pay tax on your worldwide income (no matter where you go) until you have completed the administrative process of tax emigration.
If you have already left South Africa, having completed the process of financial emigration before 2021, it’s also important to know that this does not cease your tax residency with SARS automatically. You will still need to complete tax emigration to cut ties with SARS.
Understanding industry jargon: which ‘emigration’ are we talking about?
Financial emigration, physical emigration, tax emigration: what the what?
There are three different types of emigration that people refer to. What is the difference? Let’s take a look.
|Types of emigration
|What is it?
|The physical act of leaving your own country to permanently settle in another by moving abroad.
|Previously it was necessary to formalise your emigration with the South African Reserve Bank (also referred to as formal emigration). This changed your status from resident to non-resident for exchange control purposes.
This process has been phased out and replaced by tax emigration (through SARS) from 1 March 2021.
|The administrative act of informing SARS that you have ceased to meet the requirements of tax residency.
You must request that your status be changed from resident to non-resident for tax purposes.
You must receive confirmation of your non-resident status from SARS by means of a letter.
|Leaving SA gives you access to:
|No longer an option.
|Changing your status for tax purposes means:
|No longer an option.
|How do you do it?
|Leaving the country to permanently settle abroad.
|No longer an option.
|Notify SARS by declaring that you have ceased to be a tax resident.
Each case will be assessed using two tests: the ordinarily resident test and the physical presence test. Failure to meet one = no longer qualify as tax resident.
Test 1: The ordinarily resident test
Contextual examination that looks at the location of your primary home, where your family is based and where your assets are held. If all signs point to SA, you will be considered a South African tax resident, regardless of how many years you’ve spent overseas.
Test 2: The physical presence test
Examines amount of time spent in SA. You will be tax resident if physically present in SA for:
|Important to know
|Just because you’ve physically emigrated from South Africa, does not mean you have tax emigrated. This process is not automatic.
|It is important to note that the process of financial emigration (even before 2021) did not amount to tax exit/tax emigration.
Tax emigration is still necessary to cut ties with SARS.
|Your tax residency is not automatically terminated when you physically emigrate. You must make it official with SARS.You still retain your South African citizenship*.
|*Be careful with dual citizenship: you will automatically lose your SA citizenship if you don’t get permission from the Department of Home Affairs before accepting foreign citizenship elsewhere.
What happens to your Retirement Annuity when you emigrate from South Africa now?
Previously the only way to withdraw funds from your RA before the age of 55 was through financial or formal emigration. However, you can now obtain the complete value of your RA under the following conditions:
- You have left South Africa permanently with no intention of returning;
- You have ceased tax residency with SARS and received confirmation thereof;
- You have maintained your non-resident status for at least three years; and
- You are tax compliant with SARS and have been issued a TCS PIN.
Important facts to note about tax emigration:
- Tax emigration is not an automatic process. Leaving the country doesn’t make you a non-resident. Until you have received official acknowledgement from SARS that they have reviewed your case and they agree with your assertion that you have ceased to meet the requirements of tax residency, you will still be expected to submit a tax return in South Africa, declare your foreign earnings and pay tax on them.
- As long as you remain a tax resident, however, you have access to tax relief in the foreign income exemption. This exemption allows you to ask SARS to exclude your first R1.25 million earned abroad when calculating your tax liability for that period.
- You no longer physically count as a tax resident once 365 days have passed since your departure. According to the physical presence test, the days start adding when you physically leave South Africa. Again, this is not an automatic process, but merely one of the grounds you can use when making your case to SARS that you have ceased to meet the requirements of tax residency.
- On the date you cease tax residency (cessation date), SARS treats you as if you have disposed of your worldwide assets at market value the day before. As such, you may become liable to pay capital gains tax (also known as exit tax) which is payable immediately, not when you submit your next return.
- After tax emigration, you will still pay tax on income sourced in South Africa (such as rental income, share dividends, etc) even after you have completed tax emigration and you must file a tax return accordingly.
If you thought you’d be able to physically emigrate and leave SARS behind with immediate effect, you’re likely to be disappointed. The revenue authority is keeping a close eye on South Africans making their exit and questioning every financial move. Not declaring income earned abroad in the time before you have ceased tax residency leaves you open to being prosecuted for tax evasion. On the other hand, if you emigrated a number of years ago without clarifying your position with SARS, and without paying your exit tax you still have a chance to make things right by using the SARS Voluntary Disclosure Programme.
FinGlobal: cross-border financial specialists for South African expats
If you need assistance planning for your tax emigration, or clarifying your tax residence status from abroad after financial emigration, FinGlobal is ready to assist. We can help with all aspects of your financial transition, including tax clearance and retirement annuity withdrawal.