Reducing taxes as a South African expat: what you need to know about cross-border tax planning

Moving abroad? Don’t forget about taxes! While it’s understandable that you’re excited to make the move, overlooking the tax implications of your emigration from South Africa can be costly. Here are some key points to consider before leaving South Africa, potentially minimising your tax burden.

South African Expat Tax Tips

1. Be clear on your tax resident status

The first thing to address is the issue of where you will be liable for tax and how much tax you’ll be expected to pay in South Africa and in the country you’ve just moved to.

Why is this important? South Africa has a residency-based system of taxation, which means that even if you live abroad, you will still be expected to pay tax to SARS on your worldwide income if you meet the requirements for tax residency. This has become known as expat tax.

It is essential to bear in mind that SARS has the authority to treat you as a tax resident, no matter where in the world you live, until you complete the official process of tax emigration and have your tax status changed from resident to non-resident by the revenue authority.

As such, it is possible to have left South Africa and still be considered a tax resident. Some common scenarios in this regard include living overseas but:

• Your spouse and kids are staying in South Africa.
• You spend over 91 days per year in the country.
• You retain significant assets within South Africa.
• You work on a private yacht not registered as a permanent foreign residence.
• You store belongings in South Africa.

The tax residency tests used by SARS are somewhat subjective, and these are just a handful of indicators that would signal to SARS that you have not ceased tax residency in South Africa because you still maintain ties with your home country. This makes it important for you to seek advice from a tax practitioner in South Africa to determine your current resident status.

Read more: Planning to emigrate from South Africa? Here’s what you need to know about tax.

2. Know that you’ll have to file a tax return in South Africa as long as you are a tax resident.

Until you have deregistered from SARS, you will need to file a tax return in South Africa. However, you might not always need to pay tax in South Africa, depending on your taxable income and your specific circumstances.

Here’s how to potentially avoid South African income tax:

• Extended absence: Spending more 183 days outside South Africa (including at least 60 consecutive days) qualifies you to apply for tax exemption on the first R1.25 million of foreign income from South African tax.
• Double Taxation Agreements (DTAs): Becoming a tax resident in a country with a DTA with South Africa can offer relief from South African tax.

It is important to note that not all countries have double taxation agreements with South Africa, and each DTA differs in how it offers relief.

Read more:

• What is the foreign income tax exemption in South Africa and how do you claim it?
• What happens when I do not declare foreign income if I have yet to cease SA tax residency?
• Double tax warning for emigrating South Africans – what you need to know

3. You can plan your move to minimise your Capital Gains Tax liability.

When you exit the South African tax system (by virtue of tax emigration) this triggers a capital gains tax liability with SARS. In this case, SARS treats you as if you have sold your worldwide assets to your foreign self, and you become liable for capital gains tax on them. Practically speaking, this is SARS cashing in on the capital gains tax they would have been due if you sold these assets while you were still a tax resident.

Insider tip: Leaving early in the tax year can significantly reduce exit tax. This is because:

• Capital gains tax is not a flat rate: A portion of the gain is added to your annual taxable income.
• Lower total income = Lower tax bracket = Lower overall tax: Leaving early leads to a lower total taxable income, potentially keeping you in a lower tax bracket and reducing your overall tax burden.

It is important to remember that this exit tax becomes immediately payable when you leave and not at the end of the tax year when you file your return. Waiting until your next return to handle CGT gives SARS the opportunity to charge you late penalties on the amount.

4. You can mitigate CGT on your South African property when emigrating.

While “exit tax” doesn’t apply to South African property, you’ll still face capital gains tax (CGT) when you eventually sell it. Here’s how to navigate this:

• Primary residence exemption: Your primary residence qualifies for a CGT exemption of up to R2 million. Consider selling your primary residence while it still qualifies for the exemption.
• Tax bracket considerations: If your property exceeds R2 million and is sold in the same year as your exit, ensure the combined CGT doesn’t push you into a higher tax bracket.
• Non-primary residence: If the property wasn’t your primary residence throughout ownership, seek tax advice to calculate your potential CGT liability.

Insider tips:

• Selling attempt allowance: South Africans who can demonstrate attempting to sell their primary residence before leaving may be eligible for special allowances.
• Extended “primary residence” status: Listing your primary residence for sale before leaving can extend its “primary residence” status for two years while on the market, allowing you to utilise the R2 million exemption and potentially shifting any excess CGT to another tax year.

Important: Do not rent out your primary residence before leaving, as it disqualifies it from the exemption. However, renting is allowed after leaving as long as the property remains on the market.

5. Address tax emigration as soon as you can.

Many South Africans delay notifying SARS about leaving the country, which is likely to result in a number of problems, such as:

1. Surprise audits: SARS might force you to prove you’re no longer a resident and owe no tax.
2. Higher exit tax: Later emigration may mean calculating “exit tax” based on your current assets, potentially higher than when you left, along with the possibility that you will incur penalties.
3. Retirement annuity transfer issues: You will not be able to cash in your retirement annuity until you have completed tax emigration and maintained your non-resident tax status for a minimum of three years.

Read more: Protect your foreign income from SARS with these two documents.

FinGlobal: cross-border tax specialists for South African expats

Need a hand managing your tax compliance in more than one jurisdiction? Don’t get caught off-guard by SARS. FinGlobal can assist you with planning your tax emigration and timing your move to minimise your tax obligation. We can also assist with tax clearance, tax refunds and getting your Non-Resident Confirmation Letter from SARS.

To get started with clarifying your tax residency status in South Africa, leave your contact details below and we’ll be in touch to start your free, no-obligation SARS assessment.