With the rapid rise in opportunities presented by globalization and with more South Africans viewing the world as a global village, South Africans are migrating from South Africa for various reasons which include retirement, tax haven, marriage and many more personal reasons. However, it is important to note that such movements can create adverse financial and tax consequences on an individual, thus it is imperative to consider these effects before leaving the country.
The Oxford dictionary defines emigration as ‘the act of leaving one’s own country to settle permanently in another’. Emigration has both tax and exchange control implications. If you are considering emigrating, it is critical to have a holistic picture of the South African tax (SARS) and South African exchange control (SARB) implications.
If you have children and/or grandchildren who are residing abroad but have not formalized their emigration, it is important to understand the impact your death may have on their ability to receive an inheritance from your South African estate. Migration means temporarily relocating to a foreign country, usually to work or study, without exporting your assets from your home country. Have it in mind that this movement may not present any financial or tax challenges.
By relocating on a non-permanent basis, you still remain a South African resident for tax and exchange control purposes, which means you still remain liable for tax in South Africa and you will be taxed on all of your worldwide income and gains by SARS. But you will still be exempted from paying income tax for actual or deemed income sourced in the country you have relocated to.
Howbeit, your assets in South Africa will not be subject to Capital Gains Tax and in terms of South Africa Reserve Bank (SARB) rules, you will be allowed to take money offshore via an annual investment allowance of R10 million, subject to getting a tax clearance from SARS. Your bank account will also not be designated as non-resident/blocked and your assets will not fall under the control of an SARB authorized dealer.
But in other hand, emigration entail leaving SA permanently to settle in another country, taking with you as many of your assets with you. Have it in mind that if you emigrate without adequately notifying the South African Reserve Bank (SARB), you are viewed as a South African resident (for tax and exchange control purposes) living temporarily abroad, subject to the same tax laws and financial regulations as people living in SA.
Therefore, if you intend to leave the country permanently, financial emigration is, in most cases advisable. You are expected to register your intentions with the SARB by submitting your application with supporting documents which include a tax clearance certificate from SARS. Once the application has been successful, the SARB will issue you proof of emigration.
Tax Implications of Emigrating from South Africa
Firstly, it is very crucial to understand the difference between tax emigration and financial emigration. There is often confusion between the two concepts, and you’ll sometimes fall into the trap of incorrectly assuming what actually applies to you. Simply put, if you’re planning on relocating, or have already moved abroad, financial emigration from South Africa can help you access and transfer your financial assets out of the country.
However, this type of formal emigration does not entail that you are automatically considered a non-resident for tax purposes. Note that the South African Revenue Service (SARS) maintains its own criteria to determine your tax residency status and whether or not you should be paying tax in South Africa.
SARS will examine factors like how much time you spend in South Africa and where your family and assets reside. Nonetheless, if you are indeed financially emigrating, the process can be used as additional proof of your intention to settle overseas.
Tax emigration, on the other hand, involves informing SARS that your tax status has changed and that indicates how you should, or should not, be taxed in South Africa. Note that the most important thing to remember here is that, as a South African tax resident, you pay tax based on your worldwide income and your worldwide asset base.
Whereas a non-tax resident only pays tax on their South African sourced income and South African sourced asset base. The following are some of the implications of emigrating from South Africa:
- When you cease to be an SA resident, you are treated/deemed as having disposed your assets for an amount equal to the market value of the assets on the day before you ceased to be a resident; and then bought them again for the same market value the following day. You will be seen by SARS as having sold your assets even if you did not actually sell them. Have it in mind that this deemed disposal will activate CGT on all your assets (including your worldwide assets) and income tax on your trading stock. For your worldwide assets, for example, direct offshore investments, it would mean that even though you did not realise them, SARS will assume that these assets were realised thus making the unrealised or fictional gain subject to CGT.
- Immovable property in SA is exempted from this deemed disposal provision. CGT will only be triggered on the actual date of sale.
- Note that you will be allowed a Foreign Capital Allowance (FCA) of R10 million per adult per calendar year or R20 million per family unit per calendar year. Further, in the year of actual departure, a travel allowance of up to R1 million per adult and R200 000 per child under the age of 18 years is allowed. You will also be allowed to export your assets that fall within an overall insured value of R2 million.
- Any remaining assets and the subsequent cash proceeds on disposal will fall in your blocked account and will be under the control of your bank’s non-resident centre. The SA bank account holding pre-emigration assets will be designated as a blocked account (a non-resident account subject to scrutiny and tax review).
- You can however, on a separate application to SARB, request that these funds be remitted from South Africa against payment of the 10% exit charge. Note should be taken of the fact that persons who have already emigrated, but have not fully utilised the current foreign capital allowance are allowed to make additional capital transfers to the extent that the total amount remitted does not exceed the current limits.
It is necessary to understand that changing your tax residency does not entail that you automatically undergo financial emigration and you may not even benefit from applying for financial emigration. Changing your tax residency status is a daunting and admin-intensive process.
You need to deal with several different parties. There are also a number of complexities to be aware of in advance when making decisions to change your tax residency. As such, many people choose to rather engage professional services to take care of the process for them.