Tax emigration is the process by which South Africans formally change their tax status to non-resident for tax purposes. This means that they are no longer subject to South African tax on their worldwide income, but only on income sourced within South Africa. This process is crucial for those who plan to live abroad long-term and want to avoid double taxation. In this post, we examine and answer some of the most frequently asked questions about tax emigration for South Africans
The importance of tax emigration for South Africans
For South Africans, understanding tax emigration is essential due to the country’s comprehensive tax system, which taxes residents on their global income. By becoming a non-resident for tax purposes, individuals can optimise their tax obligations, ensure compliance with international tax laws, and potentially reduce their tax burden.
What is tax emigration?
Tax emigration involves formally notifying the South African Revenue Service (SARS) that you are no longer a tax resident of South Africa. It’s important to distinguish this from physical emigration, which is the process of physically moving to another country. While physical emigration can trigger the need for tax emigration, the two are not the same. Tax emigration focuses solely on changing your tax status.
Why do South Africans consider tax emigration?
Many South Africans consider tax emigration for a variety of reasons:
Financial: To avoid being taxed on worldwide income and potentially reduce their overall tax liability.
Political: Due to political instability or dissatisfaction with the government policies.
Lifestyle: Seeking a better quality of life, work opportunities, or retirement in another country.
What are the benefits of tax emigration?
Tax efficiency: Minimising tax liabilities by avoiding double taxation.
Financial planning: Simplifying financial planning and compliance.
Peace of mind: Ensuring full compliance with international tax regulations.
What are the key steps in the tax emigration process?
Initial considerations
Before starting the tax emigration process, it’s crucial to evaluate your financial situation, understand the implications for your investments and assets, and consider the tax laws of your new country of residence.
Informing SARS (South African Revenue Service)
The first formal step in tax emigration is informing SARS of your intention to change your tax status. This involves submitting the necessary documentation to demonstrate that you meet the criteria for non-residency.
Financial planning and asset evaluation
You need to thoroughly evaluate your financial situation, including local and foreign investments, retirement funds, and property. This helps in understanding the tax implications and planning accordingly.
Formal applications and documentation
Complete and submit all required forms and documentation to SARS, including an application for an Emigration Tax Clearance Certificate, which confirms that your tax affairs are in order.
How does tax emigration affect your South African tax obligations?
Income Tax
After tax emigration, you will only be liable for South African tax on income sourced within South Africa.
Capital Gains Tax
You may be subject to an exit charge on the capital gains of your worldwide assets at the time of tax emigration.
Double Taxation Agreements
South Africa has double taxation agreements (DTAs) with many countries to prevent double taxation of income. Understanding these agreements is crucial for effective tax planning.
Exit Charges
Upon tax emigration, you might be liable for exit charges, which are taxes on the deemed disposal of your worldwide assets.
How does tax emigration impact your investments and assets?
Handling local investments
Local investments will still be subject to South African tax regulations, but foreign investments will be taxed according to the laws of your new country of residence.
Foreign investments and taxation
Foreign investments will generally be taxed by the country in which they are held, subject to any applicable DTAs.
Retirement funds and annuities
The treatment of retirement funds and annuities can vary, and it’s essential to understand the specific rules and regulations of both South Africa and your new country.
Property ownership implications
Owning property in South Africa will continue to have tax implications, including income tax on rental income and capital gains tax on sale.
What are the common pitfalls to avoid during tax emigration for South Africans?
Misunderstanding legal requirements
Ensure you understand all legal requirements and comply fully with SARS regulations to avoid penalties.
Inadequate financial planning
Comprehensive financial planning is crucial to avoid unexpected tax liabilities and optimise your financial situation.
Ignoring double taxation agreements
Neglecting to consider DTAs can lead to double taxation and unnecessary tax burdens.
Not seeking professional advice
Engaging with a professional advisor can help navigate the complexities of tax emigration and ensure compliance with all regulations.
FAQs about tax emigration for South Africans
What is the difference between tax residency and physical residency?
Tax residency is determined by where you are liable to pay taxes on your worldwide income, while physical residency refers to where you physically reside. You can be physically resident in one country but a tax resident in another.
How long does the tax emigration process take?
The process can vary but generally takes several months, depending on the complexity of your financial situation and the efficiency of SARS.
Do I need to inform my bank and other financial institutions?
Yes, it is essential to inform your bank and other financial institutions about your change in tax status to ensure compliance and proper management of your accounts.
Can I return to South Africa after tax emigration?
Yes, you can return to South Africa, but this may affect your tax status and could require you to re-establish tax residency.
What happens to my South African retirement fund?
Your South African retirement fund remains subject to South African regulations. Withdrawals may be taxed according to South African tax laws.
Will I still owe taxes in South Africa after tax emigration?
You will still owe taxes on any income sourced within South Africa, even after tax emigration.
How do I choose the right professional advisor?
Look for a professional with experience in international tax law and a good understanding of both South African and the new country’s tax regulations.
How Apostil Can Help
Apostil.co.za works with experienced immigration lawyers to assist South Africans with tax emigration. Our team can help you navigate the complex process of changing your tax residency, ensuring that you have all the necessary documents and that your tax obligations are managed effectively. With our professional assistance, you can transition smoothly and confidently to your new country of residence.
📞 Call us today at +27 21 825 9940 or +27 11 083 9830
📧 Email: clients@apostil.co.za
