If you’ve decided to take the bold step of emigrating from South Africa, it’s a good idea to consider the implications of your international relocation before finalising your plans. The financial considerations involved in emigration can be overwhelming, and missteps in this area can lead to unnecessary expensive mistakes for those venturing beyond South African borders.
When is the best time to emigrate from South Africa?
Although the saying is usually “there’s no time like the present,” when it comes to emigrating, timing is everything. Leaving in February, which is the end of the tax year, can turn the dial up on your Capital Gains Tax (CGT) liability on your emigration – if any – owed to the South African Revenue Service when you eventually become a non-resident for tax purposes. Delaying your departure to March can lower your CGT liability, as your South African income will probably diminish, which will have a knock-on effect to your SARS liability.
What is tax residency in South Africa and why is it important?
If you are considered a South African tax resident, you will be taxed on all your income in South Africa. This means that when you move overseas, get a job and start earning money, SARS will expect a cut of your foreign employment income. Why? Because South Africa has a residency-based tax system. In such a system, it is possible to leave the country and still be considered a tax resident, even though you might not necessarily still reside in South Africa.
What can make you a South African tax resident, even if you are overseas?
- If you leave South Africa but your spouse and children stayed behind
- If you spend more than 91 days in South Africa in a year
- If you still have assets and property in South Africa
- If you leave South Africa to work aboard a private charter yacht
- If you still have personal belongings in storage in South Africa
How is tax residency determined in South Africa?
According to the Income Tax Act, SARS applies two tests to decide the issue of tax residency, namely the ordinarily resident and physically present tests. Unfortunately, there is no hard and fast rule on how these tests are applied, and each determination happens on a case-by-case basis.
Do I pay tax in South Africa after I have emigrated?
What is important to know is that unless you have formally changed your tax status with the revenue authority to non-resident (by virtue of tax emigration), SARS has the authority to continue treating you as if you are a tax resident, even if you no longer live in the country. This means they’ll expect you to file a tax return and declare all of your income – whether foreign or locally sourced – and pay tax on such income. Now, if you’re already paying tax on your income in your new country, this can result in double taxation, which can seem unfair.
However, there is a measure of tax relief against double taxation available to you as long as you remain a South African tax resident. If you have spent more than 183 days outside of the country in a 12-month period, with at least 60 of those days being consecutive, then the first R1.25 million earned in foreign employment income can be declared exempt from South African tax, by virtue of the foreign employment income exemption. This relief is not automatic, and you will have to prove to SARS that you meet the requirements for using it.
- What is the foreign income tax exemption in South Africa and how do you claim it?
- How are residents and non-residents taxed in South Africa?
How do I avoid paying tax in South Africa after I emigrate?
It is possible to minimise your tax obligation in South Africa by moving to another country with a double taxation agreement (DTA) with South Africa. For instance, the UK’s tax treaty with South Africa can mean that you’ll only need to pay tax on your foreign income in the UK. However, DTA protection does not apply automatically and it will need to be sought and reviewed annually. In the absence of a DTA, your only real option to avoid being taxed in South Africa as a resident is to change your tax status to non-resident. This is done by completing the process of tax emigration through SARS.
What happens after you complete tax emigration from South Africa?
- You might be charged an exit tax by SARS. This is capital gains tax that arises when you emigrate and change your residency status. It is calculated on the market value of your worldwide assets, on the day before your permanent departure from South Africa.
- You will receive confirmation of your non-resident status from SARS. This letter is your protection against paying tax in South Africa on your worldwide income.
- You will have two tax assessments. In the year that you cease to be a tax resident of South Africa, you will be assessed twice by SARS. Once for the portion of time during which you were still a tax resident, and once for when you became a non-resident.
- You will become eligible to cash in your retirement annuities. Once you have been a non-resident for tax purposes for a minimum of three years, you can cash in the full value of your retirement annuity and transfer the proceeds abroad, once SARS has taken their lump sum payment tax.
- New tax implications when ceasing South African tax residency.
- Emigrated from SA? How to deregister from SARS income tax.
FinGlobal: tax emigration specialists for South Africans
Handling the financial transition from South Africa to your new country is likely to be stressful. Permanently relocating from SA is not enough to cut your ties with SARS, and if you think the revenue authority is going to just forget about you once you’re gone, you’re sorely mistaken. SARS will keep cracking down on expat tax compliance, so it’s in your best interest to clarify your tax resident status as soon as you can. FinGlobal is ready to assist South African expats with all matters relating to expat tax, tax emigration, tax clearance, and retirement annuity withdrawals.
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