Understanding South Africa’s exit tax – a guide for expats

When it comes to money matters, SARS is never far behind. Whether you’re earning a salary, receiving a retirement lump sum, or cashing in on the sale of an asset, the South African Revenue Service wants to know about it — because they’re entitled to a slice of the profit. One of the ways this happens is through Capital Gains Tax (CGT). CGT is part of your income tax and applies when you make a profit (or a qualifying loss) on certain assets. If that happens, you’ll need to declare it and settle up with SARS in the tax year when the gain or loss took place. The good news is that there are some handy exclusions that can soften the blow.

But here’s where it gets especially important for South Africans living abroad: if you’ve decided to cease South African tax residency, that decision itself is a trigger event for CGT. In other words, you’ll run into the exit tax from South Africa. Don’t panic, though — this isn’t a penalty. It’s just SARS’ way of taxing any growth on your worldwide assets before they officially release you from the South African tax net.

Capital Gains Tax in South Africa – what exit tax is

Think of South African exit tax as SARS’ way of saying goodbye when you officially break tax ties with the country. The moment you tell SARS that you’re no longer a South African tax resident, they treat it as if you’ve sold all your worldwide assets the day before you left the tax net. This is called a “deemed sale.”

Why? Because SARS wants to collect capital gains tax South Africa on the growth of your assets while you were still considered a resident. It’s not about the cash in your bank account today, but rather about the increase in value of things like property or investments over time.

A few key things to note:

• The rules for capital gains tax are set out in the Eighth Schedule to the Income Tax Act.
• CGT South Africa is charged at a lower effective rate than ordinary income tax.
• Any gains or losses made before 1 October 2001 don’t count.
• If you’re a non-resident selling property in South Africa, the buyer must withhold tax upfront. This acts as an advance payment toward your final SARS capital gains tax liability.
• Not every asset attracts CGT — there are exclusions (we’ll get to these shortly).

Who pays Capital Gains Tax?

Capital gains tax in South Africa applies to individuals, trusts, and companies.

• If you’re a South African tax resident, SARS wants CGT on assets both in South Africa and worldwide.
• If you’re a non-resident, you’ll only pay CGT on immovable property in South Africa or assets linked to a permanent establishment in the country. Even shares in a property company can count as immovable property.

Exit Tax in South Africa – when is it due?

The SARS exit tax only happens once, and that’s at the point you officially cease tax residency in South Africa. You trigger it when you submit the right paperwork to SARS, making it clear that you’ve settled overseas permanently and no longer meet the tests for South African tax residency.

This isn’t a recurring annual tax. It’s a once-off calculation that forms part of the process of tax emigration from South Africa, wrapping up your financial obligations to SARS before moving forward as a non-resident.

It’s important to note that the exit tax is due immediately on your exit, not at the end of the tax year when you file your return. If you wait until your next tax return to pay, SARS can charge late payment penalties on your capital gains tax.

When does Capital Gains Tax apply?

Events that trigger a capital gains tax liability include:

1. Selling an asset
2. Donating or exchanging an asset
3. Losing or destroying an asset
4. Death

But don’t panic — SARS has carved out several exclusions.

Exit tax from South Africa – assets included and excluded:

Not everything falls under the exit tax calculation. Here’s the breakdown of how capital gains tax is calculated in the case of tax emigration from South Africa:

• Included: Most worldwide assets you owned while still a resident — shares, unit trusts, property outside South Africa, and even crypto.
• Excluded: South African immovable property (land and buildings) and certain retirement funds. These remain taxable in South Africa even after you change residency.

This distinction is important, especially if you’re planning to sell assets in the future as a South Africa non-resident.

CGT exclusions in South Africa:

• The first R2 million gain (or loss) on your primary residence.
• Most personal-use assets (think furniture, cars, clothing).
• Retirement benefits (though this could change).
• Proceeds from long-term insurance policies.
• An annual CGT exclusion of R40 000 for individuals and special trusts.
• A small business exclusion of up to R1.8 million for people over 55 disposing of a small business valued under R10 million.
• In the year of death, the exclusion rises to R300 000.

These exclusions are designed to keep smaller gains and losses out of the system, which helps reduce admin for both taxpayers and SARS.

What happens when you cease to be a tax resident?

• SARS no longer taxes you on worldwide income, only on South African–sourced income. But before you go, SARS hits you with an exit tax from South Africa.
• They treat it as if you sold all your worldwide assets to yourself (at market value) the day before your residency ended. This creates a capital gains liability in South Africa.
• That gain is added to your taxable income for the year. Depending on your bracket, this could push you into higher tax rates — a nasty surprise if you weren’t prepared.
• You can still use the R40 000 CGT exclusion to soften the blow.
• The SARS exit tax must be declared and paid in your tax return for that assessment period.

Important: You are responsible for telling SARS about your change in tax residency. Until you notify them (and they confirm the change), SARS assumes you’re still a resident and can keep taxing you as such.

If you don’t settle your exit tax liability, SARS can slap you with penalties — up to 200% in some cases.

How to prepare for Capital Gains Tax on your tax emigration

Dealing with South African exit tax doesn’t have to be overwhelming. Preparation is everything:

• Get valuations: Know the market value of your assets before you cease tax residency in South Africa.
• Understand base costs: When calculating base cost for capital gains tax, include what you originally paid plus transaction costs and improvements.
• Know the rates: The capital gains tax rate South Africa varies depending on whether you’re an individual, trust, or company. For individuals, only a percentage of the gain is taxed at your marginal tax rate.
• Get professional advice: The rules in section 9H of the Income Tax Act are complex. Professional help ensures your numbers are correct and your paperwork is airtight.
• Plan the timing: Making your exit early in the tax year can be particularly effective, giving you time to structure your affairs in a way that optimises your exit tax South Africa liability. With the right assistance, you’ll know exactly when and how much you’re expected to pay, so you can budget ahead and include your CGT in your relocation costs.

South African exit tax – the bigger picture for expats

At first glance, the emigration tax from South Africa can feel like SARS is trying to squeeze you on your way out. However, it’s not a punishment; it’s simply the way tax systems worldwide ensure residents settle their accounts t it’s not a punishment, it’s simply the way that tax systems worldwide ensure residents settle before leaving.

Once you’ve paid your exit tax from South Africa and completed your tax emigration, you’ll be free of SARS taxing your worldwide income. Going forward, they’ll only tax you on South African–sourced income, like rental from property you still own here.

Handled properly, the SARS exit tax is just another box to tick in the financial migration process after permanently relocating from South Africa. With accurate valuations, careful planning, and the right exclusions, it doesn’t have to derail your plans.

FinGlobal: tax emigration specialists for South Africans

Planning your move abroad? Don’t leave your SARS exit tax to chance. With capital gains tax applying to your worldwide assets at the point you cease tax residency in South Africa, early planning is key.

FinGlobal can help you understand exactly how your exit tax liability is calculated, identify applicable exclusions, and structure your move to minimise surprises. With expert guidance, you can include your CGT in your relocation budget, meet all paperwork deadlines, and make the transition from South African tax resident to non-resident smooth and stress-free.

Contact FinGlobal today to get tailored advice and make your tax emigration as straightforward as possible.