South African expats often assume that simply living abroad automatically changes their tax status. Unfortunately, this isn’t the case. Even if you’ve been living overseas for years, you might still be considered a South African tax resident – meaning SARS expects you to pay tax on your global income.
Tax emigration is the formal process of ending your South African tax residency. It’s a crucial step that many expats overlook, often leading to unexpected tax bills and compliance headaches down the line.
Understanding South African tax residency:
South Africa uses two tests to determine tax residency: the ordinarily resident test and the physical presence test. You’re considered a tax resident if you meet either criterion, regardless of where you currently live.
The ordinarily resident test looks at where your permanent home is based on factors like family ties, business interests, and social connections. The physical presence test is more straightforward – if you spend more than 91 days in South Africa in the current tax year and more than 915 days over the past five years, you’re likely a tax resident.
Many expats discover they’re still South African tax residents years after emigrating, simply because they never formally ended their tax residency status.
What tax emigration means for expats:
Tax emigration formally notifies SARS that you’ve ceased being a South African tax resident. Once approved, you’ll only pay South African tax on income sourced within the country – not your global earnings.
This process also triggers a deemed disposal of your worldwide assets at market value, potentially creating a capital gains tax liability. However, each individual receives a R40,000 annual exclusion, and primary residences are exempt up to R2 million.
The good news? Once you’ve completed tax emigration, you’ll have much clearer tax obligations and can focus on compliance in your new country of residence.
Key benefits of tax emigration:
- Simplified tax obligations: You’ll no longer need to declare foreign income to SARS or worry about South African tax on your overseas earnings.
- Estate planning clarity: Your worldwide estate won’t be subject to South African estate duty, making inheritance planning simpler for your beneficiaries.
- Investment flexibility: As a non-resident, you can access your South African retirement funds without the usual age restrictions, though a three-year waiting period applies.
- Peace of mind: Formalising your tax status eliminates uncertainty and reduces the risk of future disputes with SARS.
When should expats consider tax emigration?
Tax emigration makes sense if you’ve permanently relocated abroad with no intention of returning to South Africa as a resident. It’s particularly beneficial for expats who:
- Have significant foreign income or investments
- Own property or other assets outside South Africa
- Want to access their South African retirement funds
- Need clarity for estate planning purposes
However, tax emigration isn’t reversible without going through a formal process with SARS if you later decide to return to South Africa permanently.
Read more: Returning to South Africa? Tax implications for the non-compliant expat’s homecoming – FinGlobal
The tax emigration process:
Tax emigration involves submitting specific forms to SARS, including detailed information about your assets, departure date, and new country of residence. You’ll need to prove that you’ve genuinely emigrated and established tax residency elsewhere.
The process can be complex, requiring careful documentation and often taking several months to complete. Many expats work with tax specialists to ensure accuracy and avoid delays or rejections.
FinGlobal: Helping South African expats take control of their tax status.
If you’re a South African expat who hasn’t formalised your tax emigration, now is the time to act. The longer you wait, the more complex your situation may become, especially if SARS later questions your tax residency status.
FinGlobal specialises in helping South African expats navigate tax emigration and other cross-border financial matters. Our experienced team can guide you through the entire process, ensuring your tax affairs are properly structured for your life abroad.
Contact us today for a free consultation to discuss your specific situation and take the first step toward tax clarity.