Emigration numbers from South Africa are on the rise as more people seek to start afresh overseas. However, emigrating from South Africa is not as simple as packing your possessions and moving your family overseas once you’ve got your passports and visas sorted. There are a number of other procedures that must be followed in order to make a clean break from South Africa, including the process of tax emigration. Tax emigration is the official means by which South Africans living abroad can terminate their tax obligation with the South African Revenue Service (SARS), and have their status changed from resident to non-resident for tax purposes. Becoming a non-resident for tax purposes also has a number of other benefits. Let’s take a look at what these benefits are, so you can enter the process with eyes wide open and make the best possible decision for your future.
South African expat vs tax non-resident: what’s the difference?
Until you have completed the process of tax emigration to cease your tax residency you are simply an expat. For tax purposes, this means you are still considered a tax resident of South Africa. This is because you have not yet informed SARS of your intention not to return to the Republic. You have not yet shown that you no longer meet the requirements for tax residency, which means SARS is still allowed to treat you as a tax resident by default and tax your worldwide income accordingly – this is known as ‘expat tax’.
A tax non-resident is an expat who has completed the necessary formal procedures to have their status changed from tax resident to tax non-resident, which means SARS can now only tax them on their income sourced in South Africa because their obligation to pay tax on their foreign employment income has been terminated, as they no longer meet the requirements for tax residency.
How do you cease your South African tax residency?
The physical presence test is used in conjunction with the ordinarily resident test, in order to determine tax resident status.
You will need to inform SARS that you no longer meet the requirements for tax residency, using the RAV01 form on SARS eFiling. Once you have submitted this form, it will trigger an investigation which will scrutinise your claim of no longer meeting the criteria for tax residency and validate your current tax residency status. To facilitate SARS’ investigation, you will need to submit additional supporting documentation that unequivocally demonstrates your permanent relocation abroad and verifies your assertion that you have no intention of returning to South Africa.
- A step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
- Breaking tax residency with SA: when to apply the physical presence or ordinary residence test
What are the consequences of ceasing tax residency in South Africa?
Once SARS is on board with your assertion that you have ceased to meet the requirements of tax residency, and you have successfully jumped through the hoops of the tax emigration process, including the payment of any deemed capital gains tax (if applicable), you will attain the status of non-resident for tax purposes, which has the following consequences:
- You might need to pay an exit tax charge: when ceasing tax residency, you must declare the deemed disposal of your worldwide assets to SARS under Section 9H. This disposal is calculated on the day preceding your cessation, using market values as of that specific day.
- Your obligation to file a tax return in SA is reduced: You will only need to continue filing a tax return in SA if you earn income from South Africa.
What are the benefits of ceasing tax residency in South Africa?
In addition to a diminished obligation to file tax returns, becoming a tax non-resident also has a number of benefits.
- You can protect any offshore assets from SARS: if you cease tax residency with SARS before accumulating offshore assets, there is no obligation to pay an exit charge because you acquired them as a tax non-resident.
- You can move to a lower or tax-free jurisdiction: which is one of the main reasons most South Africans consider tax emigration.
- You can cash in your retirement annuity early: as a non-resident you become eligible to withdraw the full value of your retirement savings before the age of 55. Once you have paid the lump sum tax to SARS and any penalties for early withdrawal, you are free to move the proceeds abroad to use as you please.
- You can protect your wealth from the volatility of the Rand: moving all of your money abroad after you have completed tax emigration could be an effective way to safeguard your assets in another country with a stronger, more stable currency.
- How do I get my money out of South Africa via tax emigration?
- Tax Emigration 101 – A roadmap for migrating your finances
FinGlobal: tax emigration specialists for South Africans abroad
If you’re unsure of your South African tax resident status, it’s important to have this clarified as soon as possible. FinGlobal can help you to avoid any nasty tax surprises from SARS, and to give you peace of mind as you build your future in a new country. Whether it’s expat tax compliance, tax emigration, retirement annuity encashment or financial emigration from South Africa
we’re ready to assist.
To enquire about your South African tax status, send us an email to email@example.com or leave your details below so that we can conduct an obligation free SARS check and contact you for a free, no-strings-attached consultation and quote. Confidentiality guaranteed.