Your first year abroad is busy. You’re finding a home, starting a job and getting the kids settled. Your South African finances tend to slide down the list, and a few early oversights can cost you money for years.
Here are six common mistakes and how to avoid them.
1. Assuming you stopped being a South African tax resident when you left
SARS treats you as a tax resident until you formally ceased South African tax residency. And while you’re a tax resident, SARS taxes you on your worldwide income. This would include your new overseas salary.
You can cease tax residency in one of three ways:
- You stop being ordinarily resident. South Africa is no longer your real home. SARS looks at facts such as your visa, property you still own here, where your family lives and how often you visit.
- You meet the 330-day rule. If you were resident under the physical presence test, you stop being resident once you’ve been outside South Africa for a continuous period of at least 330 full days.
- A double tax agreement applies. The agreement makes you a tax resident of your new country only.
Read more: Everything you need to know about using the RAV01 form on SARS eFiling
2. Forgetting about exit tax
On the day before you cease tax residency, SARS treats you as having sold your worldwide assets at market value. You pay capital gains tax on any gain, even though nothing was sold.
This covers assets such as shares, unit trusts, crypto and foreign property, including a home you bought in your new country before your cessation date. South African immovable property held in your own name is excluded.
Read more: South African exit tax explained: what the taxman can and cannot touch when you emigrateÂ
3. Counting on the R1,25 million exemption
South African tax residents working abroad can exempt the first R1,25 million of foreign employment income each tax year. You qualify only if all of these apply:
- you’re still a South African tax resident
- you’re an employee (independent contractors are excluded)
- you work outside South Africa for more than 183 full days in any 12-month period, including a continuous stretch of more than 60 full days.
South Africa taxes income above R1,25 million at your normal rate. You may be able to claim a credit for foreign tax paid on that income, subject to limits.
4. Moving money without a plan
As a tax resident aged 18 or older, you can send up to R2 million abroad each calendar year using your single discretionary allowance. The foreign capital allowance lets you move up to R10 million more a year once SARS approves your international transfer (AIT).
Once you cease South African tax residency, you lose access to the single discretionary allowance. You get a once-off travel allowance of up to R2 million in the calendar year you cease residency. Any unused portion lapses at year-end.
Read more: International money transfer from SA: maximise your Single Discretionary Allowance before year-end
5. Rushing decisions about your retirement annuity
Your South African retirement annuity stays in South Africa. You can keep contributing, stop contributions, or cash it in once you’ve been a non-resident for tax purposes for three unbroken years.
The three years run from the date you ceased South African tax residency. Your fund will reject a withdrawal application if SARS hasn’t been told about your change in residency.
Read more: Clarifying the three-year rule – you don’t need to wait three years to tax emigrate after relocating
6. Relying only on your South African will
A South African will can cover assets anywhere in the world, but using it abroad can be slow and costly. Your new country may have different inheritance rules, and a foreign executor may struggle with South African paperwork.
A common solution is a separate will in each country where you own substantial assets. Each will should cover only the assets in that country and be worded so it leaves the other will intact.
Read more: Cross-border estate planning: expats, what happens to your South African assets on death?
South African expats: Get your first year right with FinGlobal
FinGlobal helps South African expats with tax emigration, retirement annuity withdrawals, international money transfers and tax compliance. Get in touch with our team, and we’ll help you sort out your South African finances while you settle into your new life.