When you emigrate from South Africa, you can leave most things behind. High crime levels? No longer a worry. Load shedding? Forget about it. Hadedas? Gone! One thing you cannot leave behind when emigrating from South Africa? Your tax obligation. The South African Revenue Service (SARS) is unlikely to forget about you just because you’ve skipped the country, so it’s important to make sure you understand your tax duties in order to minimise the risk of being taxed by both SARS and the tax authorities in your new country of residence.
With this in mind, here’s the lowdown on tax residency and the tax implications of emigrating from South Africa.
Determining South African tax residence: who is a tax resident?
South Africa has a residence-based system of taxation. This means that if you meet the requirements for tax residency, SARS is entitled to expect their cut of your income, whether locally-sourced or foreign-earned. This is the case even if you no longer live in South Africa. How is this so? Tax residency in South Africa is determined in two ways, and you are either considered a tax resident because you are ‘ordinarily resident’ in South Africa, or you spend enough time in South Africa to be considered ‘physically present’.
Assessing residency: the ordinarily resident and physically presence tests
According to legal precedent, being ordinarily resident in South Africa means this is where you will return at the end of your travels. Therefore, even if a South African leaves the country for an extended period and plans to return, they will remain ordinarily resident for tax purposes. When applying this tax residence test, SARS will look at your:
- Place of business, personal interests and family ties
- The location of your most settled residence and your belongings
- Educational institutions, places of worship, and social clubs
If you are not considered ordinarily resident in South Africa, you can still be viewed as a South African tax resident if you have spent more than 91 days in South Africa during the current tax year and each of the preceding five years, or if you have been in South Africa for more than 915 days in the previous five tax years. This calendar-counting exercise is known as the ‘physical presence test.’
What does this mean for your tax liability in South Africa after you’ve emigrated?
South African tax residents must pay taxes on their global income, while non-residents are only taxed on income derived from South Africa. Theoretically speaking, after emigrating the Common Reporting Standard regime should ensure fair taxation, as it permits tax authorities including SARS to share information with each other. Practically speaking, however, if you do not change their tax status, SARS can continue to recognise you as a tax resident and tax you on all income (local and foreign) in South Africa. This could result in double taxation in your new country of residence.
Permanent departure: emigrating from South Africa with no intention to return
If you plan to leave South Africa permanently, you must go through the tax emigration process once you become eligible:
- Complete the “Registration, Amendments and Verification form” (RAV01) on SARS eFiling, ensuring the correct cessation date of tax residency is recorded in your “Income Tax Liability Details” section. Update your details using the RAV01 before submitting your annual tax return to avoid manual intervention by SARS.
- Await a response from SARS regarding your RAV01 form submission, and submit the requested supporting documents, including the “Declaration of Ceasing to be a Tax Resident” form from SARS.
How is exit tax calculated in South Africa?
When terminating your tax residency, SARS assumes that you have disposed of your worldwide assets, excluding South African immovable property, making you liable for capital gains tax in certain circumstances. This calculation of tax on worldwide assets (known as ‘exit tax’) includes discretionary unit trust investments but not retirement fund savings. If taxes are owed to SARS after ceasing tax residency, they are payable immediately and administrative penalties and interest may be imposed if not settled timeously.
What are the benefits of ceasing tax residency with SARS?
- Your tax affairs are simplified. You are no longer liable to pay tax on your worldwide income in South Africa.
- You become eligible to cash in your retirement annuity. Once you have maintained your tax non-resident status for three years, you can withdraw your retirement savings in full and transfer your funds abroad (less tax).
FinGlobal: cross-border financial specialists for South Africans abroad
Ready to simplify your life and cease your tax residency with SARS? FinGlobal can assist with exiting the South African tax system and cashing in your retirement annuity. We’ve already assisted thousands of clients in more than 105 countries, and we’re ready to offer you the same convenient, hassle-free service.
To see how we can streamline your financial transition when emigrating from South Africa, leave your contact details below and we’ll be in touch. Alternatively, you can also send us an email to firstname.lastname@example.org with all your financial and tax emigration questions.