Emigration and immigration are taxing processes – and never has a pun been quite this relevant. Moving abroad is physically and emotionally draining, as well as administratively cumbersome. It’s understandable that people focus on the essentials – what it takes to get them to their new home.
Many South Africans don’t pay tax emigration much mind since it’s not a requirement for visa vetting or immigration. But leaving your affairs in the air could be detrimental for many reasons. Fin Select explains why you need to change your status to non-resident for tax purposes.
Financial emigration is not tax emigration
South Africa has a residence-based tax system, which means residents are taxed on their worldwide income. It’s important to make a destinction between tax residence and ordinary residence here. The term ‘residence-based’ could be confusing since many people would assume this refers to the place they reside.
The location of your home is relevant, but we’ll touch on that later. In this context, refers to the country where you’re registered as taxpayer.
Before March 2021, the process for severing your tax responsibilities with South Africa required financial emigration. Most people who followed this route wanted to transfer the proceeds of their retirement annuities abroad.
What’s exchange control?
Exchange control refers to protocols put in place by the South African Reserve Bank (SARB) to manage cross-border financial flows. These regulations were necessary at the time since the SARB and SARS had restricted access to international financial surveillance.
During this era South African emigrants could sever their ties with the tax man indefinitely by:
- Proving they’ve been foreign tax residents for a period of 5 years
- Applying for financial emigration (formal emigration)
Expats also relied on the ordinarily resident or physical presence tests to prove their non-resident status. This status was only formalised by SARS and the SARB if maintained for a full five years.
What was the purpose of formal emigration?
Retirement annuity regulations allow encashment for annuities valued at R247 000 max once you’ve reached retirement age (55). For annuities over R247 000 liquidation is capped at 1/3 with the remainder transferred to a living annuity.
The only legal recourse to transfer the proceeds of retirement annuities abroad was financial emigration.
Financial emigration also eliminated the need for annual Double Taxation Agreement (DTA) applications.
What are DTAs? DTAs are agreements between different tax jurisdictions that prevent double taxing of income by different countries.
Common Reporting Standard (CRS)
South African authorities weren’t the only ones struggling with vetting and verifying financial and tax affairs. The Organisation for Economic Cooperation and Development (OECD) decided to ease this burden by creating a system for sharing information. The Automatic Exchange of Information (AEOI) would
The Common Reporting Standard (CRS)
SARB and SARS weren’t the only ones struggling to verify and track financial information across borders. The Organisation for Economic Cooperation and Development (OECD) came up with a solution: the Common Reporting Standard. The Standard for Automatic Exchange of Financial Account Information in Tax Matters (the Standard).
The CRS requires all OECD members to comply with the Standard (Automatic Exchange of Information). Even former tax havens like Switzerland, the UAE and Cayman Islands comply with the CRS.
Out with the SARB and in with SARS
With the CRS in place, there’s no need for the SARB to expend resources which are automatically available to SARS. Although South Africans breathed a collective sigh of relief when exchange control was scrapped, regulation would simply be chiseled to fit a different form.
A rose by any other name, as they say.
Since the SARB’s oversight was no longer required, they handed the reins over to SARS in managing cross-border financial surveillance and transactions.
Tax emigration – a new beast with old bones
Tax emigration has similar features and protocols to the old financial emigration process, but there’s a long list of caveats. While exchange control was relaxed, oversight by a single governmental entity has also given the SARS more freedom to choose their battles (and rules).
How tax emigration differs from financial emigration
Some of the major differences between the different processes are highlighted below:
- The 3-year rule stipulates that tax emigration can only be confirmed retrospectively once emigrants have maintained a non-resident tax status for 3 years.
- Financial emigration could take anywhere between 5 and 12 months to complete, but could be undertaken at any time post-emigration.
- ‘Ordinarily resident’ and ‘physical present’ tests still apply to tax emigration, but no longer provide a fail-safe for saffas abroad.
- SARS combined their Tax Compliance Status (TCS) PINs for SA emigrants and who want to transfer up to R10-million per year offshore under their Foreign Investment Allowance (FIA). This requires both residents who want to confirm non-resident status and SA tax residents to follow the same protocols (AIT).
- AIT (Authorisation of International Transfer) is a complex and invasive process. Among other things it requires a full record of all income, assets, liabilities and losses for the three years preceding your application.
Some of these new rules can very well be bypassed or fast-tracked, but delays can also put you in the hot seat. If you’re applying for your VISA and residency as South African, or completing other emigration admin, why not kick-start your journey to financial freedom as well?
Fin Select is the best tax emigration expert for South Africans
There are tonnes of additional considerations, regulations and tax implications to consider. Fin Select will provide our clients, readers and followers with accurate and intricate information with time, but your best bet is to book a personal consultation with us to discuss your particular needs.
Content disclaimer:
Fin Select New Zealand is a subsidiary of Fin Select (Pty) Ltd, an authorised financial services provider licensed by the Financial Sector Conduct Authority and the South African Reserve Bank. We are authorised to deal with various authorised dealers. FSP No. 46307.
Content provided in these articles does not constitute financial services or advice. Views expressed in the articles are those of our freelance writers and not those of Fin Select or our affiliates.
While every effort is made to verify information before publication, accuracy cannot be guaranteed and the reader is urged to consult reputable sources to confirm such at the time of reading.
Sources:
- Organisation for Economic Cooperation and Development
- The Hong Kong and Shanghai Banking Group Ltd
- The South African Revenue Service
- Fin Select South Africa