If you’re in the process of emigrating from South Africa, you’ve probably already picked your destination country. You’ve likely already planned how to relocate your family, furkids, and worldly possessions. But have you stopped to consider your finances? Have you ever thought about the tax implications? Take a deep breath if your heart just started beating a little faster. We’re here to talk about tax emigration, how to become a non tax resident of south africa, and filing your final tax return as an expat once you’ve ceased tax residency.
South African expat tax
Emigration is a giant adventure, but there are tax implications to consider. This is because South Africa taxes its residents on their global income, and not paying attention to your tax residency status can lead to penalties. You can also live outside of South Africa and still be considered a tax resident, which makes it essential to know exactly where you stand, tax-wise. This guide will equip you with the knowledge to file your final South African Revenue Service (SARS) tax return smoothly.
Tax implications for South African expats – determining your tax residency
The first step is understanding your tax residency status. South Africa uses a residency-based system, meaning you still have an obligation to pay South African taxes after leaving. SARS considers factors like your spouse’s location, time spent in South Africa, and asset holdings.
Read more: Taxing matters: a guide to understanding South African tax residency for expats
Streamlining your South African tax emigration as an expat
Once you’ve permanently left South Africa, you’ll need to end your tax residency with SARS. Here’s what you need to know to navigate the process efficiently:
- Initiate tax emigration: After departure, complete the SARS eFiling “Registration, Amendments, and Verification” (RAV01) form within 21 days to notify SARS that your circumstances have changed.
- Accurate dates: Ensure the “Income Tax Liability Details” section on the RAV01 form reflects your departure date, which will be recorded as your tax residency cessation date.
- Update Before filing: To avoid delays, ensure that your details have been updated using the RAV01 form before submitting your annual tax return.
- Respond to SARS prompts: Await a response from SARS regarding your RAV01 form and submit any requested documents promptly. These documents are meant to support your claim that you no longer meet the requirements for tax residency.
- Finalise and confirm: Once you settle your exit tax liability, you’ll receive a Non-Resident Confirmation Letter, signifying the completion of your tax emigration process.
Read more:
- Made your decision to emigrate? What are the next steps?
- Understanding tax emigration from South Africa: a comprehensive guide.
South African tax for expats: understanding your tax filing requirements
As long as you remain a tax resident (until you receive your Non-Resident Confirmation Letter), you must file tax returns in South Africa, mainly if you work abroad. However, exemptions may apply depending on your income and circumstances. Spending over 183 days outside the country (including at least 60 consecutive days) allows you to claim an exemption on a portion of your foreign income. Double Taxation Agreements (DTAs) with other countries can also offer tax relief.
Read more: How does the foreign income exemption work for South Africans earning abroad?
Tax implications for South African expats: minimising your Capital Gains Tax (CGT) liability
Tax emigration triggers a “deemed disposal” event for tax purposes. SARS considers you to have sold all your worldwide assets to your new non-resident self on your departure date, resulting in a potential CGT liability.
Here’s a strategy to potentially reduce your exit tax before filing your final tax return:
- Leave early in the tax year: Since capital gains are added to your annual income, a lower overall income (due to leaving early) can keep you in a lower tax bracket and reduce your tax burden. Remember, this tax is due immediately upon ceasing tax residency, not at the end of the tax year.
Capital Gains Tax on South African property: tax implications of emigration
South African property is excluded from the exit tax calculation upon becoming a non-resident, but you’ll still face CGT when selling it. Here are some ways to manage the tax implications of emigration:
Primary residence exemption: Sell your primary residence before emigrating to benefit from the R2 million CGT 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: Seek tax advice to calculate your potential CGT liability if the property sold wasn’t your primary residence.
Read more: Capital Gains Tax – what’s the big deal? What are the exclusions?
Tax for South African expats – advice for minimising the tax implications of your emigration
- Selling attempt allowance: You might be eligible for special allowances if you demonstrate efforts to sell your primary residence before leaving.
- 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.
- Avoid renting your primary residence before leaving: Renting disqualifies it from the exemption. Renting is allowed after leaving as long as the property remains on the market.
FinGlobal: tax specialists for South African expats
One of the best pieces of advice we can give you is to notify SARS about your emigration to avoid complications. You must address your tax emigration as soon as possible if you want to become eligible to cash in your retirement annuities and move your money out of South Africa. As expert South African expat tax consultants, FinGlobal can assist you with every aspect of your financial transition to ensure your move is tax-compliant and efficient. We offer a full suite of trusted, cost-effective services for South African expats, including tax emigration, tax refunds, retirement annuity encashment, and international money transfers.
To put FinGlobal’s services to the test, contact us today, and we’ll be happy to assist you with emigrating your finances.