So, you’re considering moving away from South Africa, or maybe you’re already living abroad? Great! But have you considered the tax stuff? Even if you’re never coming back, the South African Revenue Service (SARS) still expects its piece of your income pie until you officially tell them you’re gone. Why is that a big deal? If you don’t cease your tax residency with South Africa, SARS can still tax you on all the money you make overseas. That’s right, they’ll tax you even if you haven’t set foot there in years! So, what’s the best thing to do? Let’s talk about how to officially tell SARS you’re out, why tax emigration from South Africa is essential, and the benefits of becoming a non-resident for tax purposes.
What is tax emigration from South Africa?
Tax emigration tells the South African government (via SARS), “I’m moving away, and I won’t be paying taxes to you anymore.” Once you successfully cease your tax residency with South Africa, you’ll be considered a non-resident for tax purposes. That means you only pay taxes on money you make in South Africa, not what you earn in your new country.
Tax emigration is the only way to cut ties with South Africa. Previously, expats could complete financial emigration through the South African Reserve Bank, but this only changed an individual’s status to non-resident for exchange control purposes. It did not affect tax resident status. That means if you left South Africa and completed financial emigration at the time, you will still need to clarify your tax residency status with SARS and complete tax emigration now.
The benefits of becoming a non-resident for tax purposes in South Africa
- Simpler taxes: You’ll only need to deal with the tax rules in your new home.
- No more foreign income tax: South Africa won’t be able to tax the money you make overseas.
- Early retirement access: If you’ve been living abroad for three years, you can withdraw the total value of your retirement annuity early without waiting until you’re 55.
The risks of not completing tax emigration after leaving South Africa permanently
- Double taxation: SARS can still consider you a tax resident even if you live outside the Republic. This means you can be taxed on your income in South Africa and your new country of residence if it also has a residence-based taxation system. Twice the tax? Yikes!
- The exit tax time bomb: When you eventually get around to regularising your tax status (by tax emigration), SARS could backdate your emigration to your departure date and charge you an exit tax on the value of your worldwide assets at that time, which might result in a higher tax liability.
- Penalties and interest stacking up: If you don’t pay the exit tax or any taxes you owe as a deemed resident, you could face significant penalties and interest that will continue to grow over time.
- Trouble accessing retirement funds: You might not be allowed to access your South African retirement annuity funds early, even if you can in your new country.
- Cross-border financial transaction difficulties: If you no longer meet the requirements for tax residency, SARS now wants to see a Non-Resident Confirmation Letter from you when making international transfers. Without this, you will not get approval to make offshore transfers from South Africa. This can be frustrating if you want access to proceeds from selling a property or an inheritance.
Ceasing South African tax residency – how to become a non-resident for tax purposes
To officially emigrate for tax purposes, you must submit a Declaration of Cease to be Tax Resident to SARS stating that you no longer meet the tax resident requirements. You’ll also need to provide supporting documents like your passport, travel itinerary, and a letter explaining why you’re leaving.
Additional information SARS will want from you to support your declaration that you no longer meet the requirements of tax residency:
- Visa details: Information about your visa for your new country.
- New country: The name and address of your new country of residence.
- Foreign tax residence certificate: A document from your new country confirming your tax residency status there.
- Family information: Details about your family members and where they live.
- Remaining assets: Information about any assets you still own in South Africa.
- Social ties and visits: Details about your social connections in South Africa and any planned visits.
Read more: Expats, avoid nasty surprises from SARS, verify your non-resident tax status today!
FinGlobal: tax emigration specialists for expats
While tax emigration can seem complicated, it is essential to understand and weigh up the risks and benefits to make informed decisions about your finances while living abroad. Not formalising your exit from the South African tax system can lead to significant financial problems, including double taxation, higher taxes due to retroactive calculations, and limited access to your money.
No matter the story behind your departure from South Africa, FinGlobal can assist you in clarifying your tax resident status with SARS to achieve tax compliance and minimise your tax risks. We can also help you complete tax emigration, withdraw your retirement annuity, and make international money transfers.
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