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Leaving the rainbow nation: what you need to know about tax residency and expat tax planning

Leaving the rainbow nation: what you need to know about tax residency and expat tax planning

December 20, 2023

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It’s an exciting thing – getting a job overseas or deciding to emigrate to settle in a new country. As exciting as it is, however, relocation (whether permanent or temporary) can get overwhelming, with so many things to consider and important decisions to make. One of the most important aspects of any transition is financial and tax planning. That’s why we decided to put together a quick guide on what you’ll need to be aware of, as a South African living and working abroad.

Tax residency in South Africa: know your status

Even if you’re living overseas, it’s important to know whether or not you are a tax resident of South Africa. Maintaining or ceasing your tax residency will determine the basis on which you are taxed, and which revenue authority can claim tax power over your income.

South African expats vs tax non-residents

In a residency-based tax system like South Africa, your tax allegiance is determined by a number of factors, such as where you spend the majority of your time as well as the nature of your ties to South Africa. As such, you can physically live outside of South Africa and still be considered a tax resident.

According to the South African Revenue Service (SARS), you will fall into one of three categories:

  1. Tax resident: you meet the requirements of both the ordinarily resident and physically present tests for determining tax resident status.
  2. Tax resident temporarily abroad: you are living and working overseas but you have not yet completed tax emigration or you intend to return home to South Africa at some point.
  3. Tax non-resident: you no longer meet the requirements for tax residency and you have ceased your tax residency with SARS, through the process of tax emigration.

Read more: Who pays what? The key difference in income tax obligations between residents and non-residents.

An expat is considered a tax resident (temporarily abroad) until they have finalised their tax emigration process with SARS and received their SARS Non-Resident Confirmation Letter. As such, if you have not yet completed tax emigration, SARS is entitled to treat you as a tax resident and tax you accordingly. South Africans earning foreign employment income are obligated to declare such income to SARS in their tax return, and to pay tax on their local and worldwide income in South Africa.

What is expat tax?

South African tax residents (who have not yet completed tax emigration through SARS) who live and work abroad are subject to tax in South Africa. This means one will pay tax in the country you reside and in South Africa. One can however claim tax exemption in South Africa on foreign employment earnings up to R1.25 million, including allowances, bonuses, fringe benefits and so forth. Anything above this threshold will be taxed in SA, and this tax has become known as “expat tax”.

Read more:

South African exchange control rules: resident vs non-resident

South Africans living abroad who have not yet completed tax emigration are still considered residents for exchange control purposes. If you need to transfer funds out of South Africa, you can move R1 million offshore every calendar year without prior tax clearance using your single discretionary allowance. To transfer more than R1 million overseas, you need an AIT (Approval for International Transfer) from SARS, you can transfer up to R10 million using your South African foreign investment allowance with a validity of 12 months.

Read more: How do allowances change when I am a non-tax resident?

What is tax emigration from South Africa?

What used to be called ‘financial emigration’ through the South African Reserve Bank has been replaced by tax emigration through SARS. It is the process by which you will tell SARS that you no longer meet the requirements for tax residency and that you would like to have your status updated to non-resident for tax purposes.

Here are a few things you need to know about formal emigration and tax emigration from South Africa:

  1. Where formal emigration through the SARB previously changed your status from resident to non-resident for exchange control purposes, tax emigration through SARS now changes your status to non-resident for tax purposes.
  2. Having completed formal emigration does not automatically mean you are now a non-resident for tax purposes.
  3. Even if you completed formal emigration, you might still need to complete tax emigration from South Africa, as one of the new requirements for the AIT (Approval for International Transfer) from SARS is a Non-Resident Confirmation Letter, which you can only get after tax emigration.
  4. The benefits of tax emigration are much the same as formal emigration, in that you will be allowed to cash in your retirement annuity early, in addition to simplifying your tax obligation.

Read more:

FinGlobal: tax emigration specialists for South Africans abroad

Making a seamless transition from one country to another shouldn’t be stressful or complicated. Choosing FinGlobal as your cross-border financial services provider will ensure that you are on the right track. From tax emigration to forex, retirement annuity withdrawal, tax compliance and more, we’re ready to assist you every step of the way.

To enquire about our convenient, safe and hassle-free cross-border financial services, leave your contact details below and we’ll be in touch to discuss your requirements.

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