If you are one of thousands of South Africans who relocated abroad permanently and completed financial emigration through the South African Reserve Bank (SARB) before March 2021, it’s important for you to know what this means. Having your formal emigration approved by SARB simply means that you are no longer considered a resident for exchange control purposes. It does not mean that you are now a non-resident for tax purposes, and until you complete tax emigration with the South African Revenue Service (SARS), the tax authority is entitled to continue treating you as a resident. As a tax resident, you are expected to file tax returns, declare your income and pay taxes on both your foreign and local earnings.
Does financial emigration still exist in South Africa?
The process of formalising one’s emigration through the South African Reserve Bank to become a non-resident for exchange control purposes no longer exists. It was phased out so that the South African Revenue Service could step in with a new process, known as tax emigration, by which South Africans can change their status for tax purposes from resident to non-resident.
The process of financial emigration now refers to the steps involved in making your financial transition from South Africa to your new country of residence.
Tax emigration vs financial emigration:
- Financial emigration/formal emigration through SARB is now a defunct process.
- Financial emigration served only to change your status to non-resident for exchange control purposes, and did not terminate your tax liability.
- Financial emigration through SARB has been replaced with tax emigration through SARS.
- Tax emigration is the process of notifying SARS that you no longer meet the requirements for tax residency.
- Financial emigration was achieved using the now obsolete Form MP 336(b), while tax emigration involves notifying SARS through the RAV01 form on eFiling, and completing the Declaration of Cease to be a Resident.
- Once you have completed tax emigration, your status with SARS will be updated to non-resident, and your tax obligations will be limited to paying tax on income with a South African source.
Why would you want to cease tax residency with SARS?
Until you officially cease tax residency with SARS, the tax authority is allowed to assume that you are still a tax resident, even if you live abroad. As a tax resident, the authority is entitled to expect you to pay tax on your foreign and local earnings.
Having your status changed to non-resident with SARS via tax emigration is a good idea because:
- It simplifies your tax obligations in South Africa, and you will only be taxed on income sourced in South Africa. Tax emigration will also eliminate the possibility of double taxation.
- You are no longer subject to the same exchange control restrictions as residents, and there is no limit to how much money you can move out of the country (with SARS’ approval, first, of course!)
- You become eligible to cash in the full value of your South African retirement annuity, once you have maintained your non-resident status for no less than three years. If you already left South Africa a number of years ago, your tax emigration can be effectively backdated, and you might be able to access your RA without delay.
Can you return to South Africa if you already completed financial emigration?
Yes, of course! Once a South African, always a South African. You can even return to South Africa if you relinquished your citizenship, it just means a little extra paperwork to make it happen.
Read more: Dual citizenship for South Africans abroad
How do you cease tax residency in South Africa?
- Read our comprehensive step by step guide step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
- Don’t forget that you will need a Non-Resident Confirmation Letter from SARS as verification that your status has been updated.
- This letter is now part of the paperwork requirements for cashing in your retirement annuity, and for getting SARS approval to make international transfers out of South Africa.
- It’s important also to know that upon ceasing tax residency with South Africa, this could trigger a possible Capital Gains Tax liability on any worldwide assets that you may have. This is known as an exit tax.
Not sure if you’re still a tax resident in South Africa? Here’s how to find out.
FinGlobal: South African cross-border financial specialists
Need assistance with clarifying your tax status with SARS? FinGlobal is a name you can trust to handle your cross-border tax and financial affairs, quickly and discreetly. We can help you every step of the way with ceasing your tax residency, and moving your money abroad.
To get started with your confidential, no-strings-attached SARS assessment, leave your contact details below and one of our tax consultants will be in touch!