Does Financial Emigration Change Your South African Tax Status?

Last year the South African National Treasury proposed to double-tax SA expats living and working abroad for a period of longer than 183 days.

The huge outcry that arose resulted in the National Treasury changing a certain aspect of the draft Taxation Laws Amendment Bill, making the first R1 million of foreign remuneration exempt for taxation if the individual is outside the country for more than 183 days as well as a continuous period of longer than 60 years during a 12-month period.

Despite this amend, many South Africans abroad are wondering whether financial emigration will render them free from having to pay South African tax.

What is financial emigration? 

Financial emigration from South Africa is a process that concludes your financial affairs when leaving South Africa to settle in another country and simply means your status with the South African Reserve Bank (SARB) changes from resident to non-resident. Financial emigration does not affect your South African birth right, your citizenship or your right to retain your South African passport. Instead, the financial emigration process facilitates the flow of your capital out of South Africa

As a financial emigrant you may transfer offshore:

• The proceeds of your retirement annuity, even before age 55. This can be used for any purpose in your new country including buying property – or even a worldwide tour
• South African source inheritance
• The proceeds of assets declared in your emigration application
• Passive income, i.e. rent, dividends, director’s fees, salary for services rendered in South Africa and income from discretionary or vesting trusts

Financial emigration means you may keep your assets and investments in South Africa and transfer portions, or all, abroad as and when you wish. Accessing your capital simply involves instructing your bank, who facilitated your financial emigration and keeps your capital account, to pay the funds to any account, anywhere in the world.

In addition, once your financial emigration is concluded and approved from a South African point of view, any capital invested offshore will be deemed from a non-resident source. This means any investment (income and capital) will be freely transmittable from South Africa and not subject to any exchange control.

Financial emigration and your tax status

Financial emigration does not determine your tax residency. Instead, your tax residency is determined in most instances by double taxation agreements (DTAs) that exist between South Africa and other countries. These DTAs determine which country has the first right to tax you, which then establishes your tax residency.

If you are a tax resident in South Africa, you must declare your worldwide income and capital gains to the South African Revenue Service (SARS). Non-residents, on the other hand, need to only disclose their South African sourced income and pay capital gains tax on South African fixed property. When you have officially financially emigrated you no longer have the obligation to disclose your worldwide income to SARS.

FinGlobal has assisted many South African expats to financially emigrate from South Africa and in the bulk of instances, the financial emigration was done after the expats had left the country.