What is the significance of tax emigration? If you have already emigrated or are planning to do so, your tax situation requires careful consideration. Simply leaving the country does not guarantee escaping the attention of the South African Revenue Service (SARS). Without careful planning, you could find yourself facing issues with the revenue authority. To prevent any unexpected tax liabilities from SARS, it’s crucial to comprehend how tax residency impacts you.
Understanding South African tax emigration
Tax emigration is the formal process of severing your tax connections with the South African Revenue Service. It entails breaking your tax ties with your home country, transforming you into a non-resident for tax purposes. Consequently, you are no longer subject to taxation on global income by SARS but only on income derived from within South Africa.
Key aspects of tax emigration
Residency Determination: The initial step involves confirming that you are no longer a tax resident of South Africa, assessed through the “ordinarily resident” and/or “physically present” tests.
Capital Gains Tax (CGT): Upon ceasing residency, you are considered to have “disposed of” all worldwide assets for capital gains tax purposes, excluding South African immovable property and retirement annuities. This triggers a potential CGT liability, often termed the “exit tax.”
It’s essential to note that tax emigration does not occur automatically when leaving the country or when no longer meeting tax residency requirements in South Africa. You must formally notify SARS of your intention to cease tax residency, seeking official recognition as a non-resident moving forward.
Taxation vs. financial emigration
Financial emigration, handled by the South African Reserve Bank, alters residency status solely for exchange control purposes, leaving tax obligations unaffected. On the other hand, tax emigration, managed by SARS, changes an individual’s status for tax purposes, becoming compulsory if one wishes to shed tax responsibilities.
Who should consider this?
Tax emigration is pertinent for individuals falling into the following categories:
- Those permanently leaving South Africa with no plans to return.
- Individuals seeking to avoid South African tax on foreign employment income.
- Those wanting to access retirement annuities before turning 55.
When and how to complete applications
After physically relocating from South Africa, completing tax emigration is necessary. Notification to SARS must occur within 30 days of your details changing. The process typically takes up to four months from receiving completed application forms and supporting documents, with duration varying based on individual financial and tax complexities.
Consequences of tax and financial emigration
The implications of tax emigration include the potential payment of exit tax (Capital Gains Tax), issuance of a Non-Resident Confirmation Letter upon SARS approval, freedom from taxation obligations on worldwide income in South Africa, the option to deregister from SARS income tax with no remaining assets or income in the country, and eligibility to withdraw the full value of retirement annuity savings after three years of non-residency.
Until officially ceasing tax residency with SARS and receiving confirmation of the status change, the tax authority continues to treat you as a resident. This means potential taxation by SARS on foreign-earned income. To ensure no future tax surprises, cutting all tax ties is essential.
Tax assistance for South African expats
For those averse to bureaucratic procedures, outsourcing the tax emigration process to specialists is advisable. Apostil.co.za collaborates with industry experts, simplifying your transition from South Africa to your new country and eliminating the associated stress. Contact us to learn more about the process.