Tax emigration and expat tax

Embarking on a journey to emigrate from South Africa is a life-changing decision, brimming with excitement, opportunities, and new horizons.

Whether you’re seeking fresh career prospects, pursuing a new chapter in your life, or simply exploring the world, emigration represents a profound step towards a different future. Yet, amid the flurry of preparations, there’s one crucial aspect that often deserves more attention than it receives: your tax affairs.

As the saying goes, “Failing to plan is planning to fail,” and this adage couldn’t ring truer when it comes to your financial well-being before leaving South Africa. During your emigration planning, it’s imperative to ensure that your tax matters are meticulously organized and compliant. Failure to do so could potentially lead to unexpected tax liabilities, penalties, and other headaches down the road.

How does SA tax work and what are your options?

The South African tax system is residency-based, which means that as an individual taxpayer, you are either classified as a resident or non-resident individual. Resident individuals are South African residents who are taxed on their worldwide income. Individuals are considered residents if they are either ordinarily resident in South Africa or meet the physical presence test. Non-resident individuals are only taxed on their income earned within South Africa. This includes income from South African sources like employment, rental income, or business activities.

As someone looking to emigrate, you have two options available to you – becoming a non-resident taxpayer and going through the tax emigration process or remaining a resident taxpayer, declaring your worldwide income and paying expat tax, should you meet the requirements.

Cutting ties with SARS

Let’s consider the tax emigration route. This route is essentially severing all ties with SARS and does require you to follow a formal procedure that gives conclusive proof that you have ceased to be a tax resident in South Africa, and that you intend to live abroad permanently.

You will be required to provide copies of your passports, with entry and exit stamps as proof that you have left, as well as copies of visa, permits or citizenship documentation that prove your new residency. A full statement of your personal assets and liabilities that you held the day before the day before you left South Africa must also be provided, along with a motivational letter.

Once your application to cease tax residency is approved, you will then be faced with paying Capital Gains Tax, also known as exit tax, on any assets that trigger this tax. Again, proof and documentation will be required for this stage of the process.

Once you have settled your exit tax bill, you will receive tax clearance in respect of your emigration. The last step then is to apply for a confirmation of non-residency letter from SARS.

The ins and outs of expat tax

Should you opt to remain a resident taxpayer, you can qualify to pay expat tax if you are an employee earning a salary in your new country and if you spend more than 183 days outside South Africa in any 12-month period, 60 of which are spent continuously outside South Africa.

This tax will exempt you from paying tax on any foreign employment earnings under R1.25 million. Any earnings above that threshold, however, are taxed according to normal tax guidelines, which could be up to 45%. Income earned in South Africa will be taxed in the same way. This exemption will only be allowed once declared in your personal annual tax return.

As a South African citizen living abroad who has not officially tax emigrated, you are still considered a resident in South Africa for exchange control purposes and are entitled to move R1 million out of South Africa per calendar year without tax clearance. This is known as your single discretionary allowance – or SDA.

Another factor to consider if you go this route is whether you would qualify for relief in terms of a Double Taxation Agreement. South Africa does not have DTA’s with all countries, so this will only apply to an expat who is living/working in a country that has concluded such an agreement with South Africa. Even then, facts and circumstances will be assessed individually.

Planning is key to a worry-free move

Your emigration status carries serious implications for your financial future. It is important to seek the counsel of tax professionals well-versed in international taxation so that you can emigrate with the peace of mind that comes from having your tax affairs in order. Foresight and meticulous planning will ensure a smooth and prosperous transition to your new life abroad.