Tax emigration is the process by which you change your residency status for tax purposes. After the process has been completed, you are regarded as tax non-resident by SARS.
Your tax residency determines where and how you get taxed. South Africa has a residency-based tax system. That means that South African tax residents are taxed on their world-wide income and capital gains, whereas tax non-residents only pay tax in South Africa on their South African sourced income and capital gains on South African fixed property.
Is tax emigration something you should consider?
If you have left South Africa already with the intention to permanently settle abroad and not to return to South Africa (except for short visits), you may have already tax emigrated. It is crucial then to formalise your tax emigration with SARS. If you don’t notify SARS of the change in your tax residency, SARS will assume that you are a South African tax resident, which entitles them to raise assessments and tax you on your world-wide income and capital gains.
If you are considering leaving South Africa to live and work overseas, it is important to understand and consider the tax consequences of staying a tax resident in South Africa and of emigrating for tax purposes. Remember, as tax resident you will be liable for tax in South Africa on the income earned overseas. There are some exemptions that apply to employment income earned overseas and South Africa has Double Tax Agreements (DTA’s) with most other countries which may provide relief for double tax. You would need to consider the application of the exemptions and the relevant DTA to understand your tax liability to SARS. Only then can you make an informed decision whether tax emigration is the better option.
One of the main benefits of tax emigration is that if you are considered non-resident by SARS, you can access your retirement funds and transfer them out of the country, subject to the fund rules and withdrawal taxes.
Tax emigration does, however, have capital gains tax (CGT) consequences. The day before you become tax non-resident, you are deemed to dispose of your world-wide assets (other than fixed property in South Africa) at market value. SARS also deems there to be an additional tax period during the relevant tax year. One tax period up to the date before becoming tax non-resident, and one period thereafter. This may also have provisional tax implications.
How do you tax emigrate?
The process of changing your tax residency status is an onerous and admin-intensive process. You need to supply SARS with a list of information and supporting documents to prove that you are no longer a resident in South Africa. As a result, most people choose to rather engage a professional team to take care of the process for them.
If you need to speak to someone to assist you in making the right decision and to take care of the process with SARS, please contact Carin Grobbelaar at cgrobbelaar@fhbc.co.za or Adv. Lorraine Oosthuysen at lorraine@fhbc.co.za.