The old process
Financial emigration from South Africa formalises your exit from South Africa for exchange control purposes South African Reserve Bank (SARB) emigration. It doesn’t mean that you are giving up your South African citizenship, and you’ll still hold on to your South African passport.
Financial emigration means that your status – for exchange control purposes with SARB – changes from resident to non-resident. Financial emigration does not change your status as a South African.
For many people, the drawcard is that they can access and transfer their retirement annuity in South Africa offshore, before the retirement date.
The new process
With financial(formal) emigration that has fallen away from March 2021. The responsibility has shifted from the Reserve Bank to SARS to change your status to a tax non-resident in SA.
There are still ways to ensure your tax status is changed with SARS and you can withdraw your retirement annuity prior to it reaching its maturity date by means of proving your tax residency to the insurers & SARS.
Understanding tax residency
If you are a tax resident and live in South Africa, you must pay SARS tax on all worldwide income.
If you are a tax resident, but live and work overseas for most of the year, you do not need to pay SARS tax on your worldwide income and the first R1.25 million of employment income is not taxed. Income earned over and above that amount will still be taxed in South Africa.
If you are not a tax resident, you only have to pay SARS tax on the income you earn in South Africa (e.g. from renting out a South African property or dividends from a South African company).
If you are tax resident in South Africa, Double Taxation Agreements (DTAs) between countries can protect you from having to pay tax on your foreign income in both South Africa and another country or allow you to pay a reduced rate. It’s worthwhile looking into the DTAs in place between South Africa and your new country of residence to ensure you’re not paying too much tax.
How SARS determines your tax status
SARS conducts two “tests” to consider whether you should be deemed tax resident.
The Ordinarily Resident test
This is a subjective test that seeks to determine where your main home is.
SARS will look at factors like:
- Where your family lives
- Where your permanent home is
- If you have belongings in storage in South Africa
- If you regularly return to a place in South Africa
The Physical Presence test
If SARS decides you are ordinarily resident outside of South Africa, it will conduct a second test. This looks at the number of days you spend out of the country.
To prove non-resident status, you need to avoid being in South Africa for a period exceeding:
- 91 days in total during the tax year under consideration
- 91 days in total during each of the five tax years preceding the one under consideration
- 915 days in aggregate during the above five preceding tax years – which amounts to an average of 183 days a year.
Paying Offshore Beneficiaries of Estate Late
Beneficiary has formally emigrated
Where the beneficiary of a South African estate has formally emigrated, the inheritance may be transferred to the beneficiary through the authorised dealer. The authorised dealer must confirm that the beneficiary has actually formally emigrated. Capital distributions from South African testamentary trusts to emigrants are also allowed.
Beneficiary has not formally emigrated but resides abroad
We often come across situations where a beneficiary has been a resident of a foreign jurisdiction for a significant period without having formally emigrated. In this instance, the executor will not be allowed to transfer the inheritance abroad. It should be noted that this is still the case even if the relevant beneficiary has taken up tax residency in the foreign jurisdiction, but has not formally emigrated from South Africa. In this case the beneficiary is regarded as a “South African Resident Temporarily Abroad” and the executor will have to transfer the inheritance to the beneficiary in South Africa and the beneficiary would have to export it, using the normal channels available to a South African resident. These are the R1 million per annum discretionary allowance and/or the R10 million per annum investment allowance.
Tax clearance
A South African resident over the age of 18 is entitled to a single discretionary allowance of up to R1 million per calendar year. The single discretionary allowance may be used for any legal purpose abroad (including for investment purposes).
If you wish to transfer more than R1M per year you will require tax clearance from SARS. The annual limit is R10 million per calender year per person. The utilisation of his allowance requires the individual to be in good standing with the South African Revenue Service and a tax clearance certificate is required.
You can apply for more than the R10M per year with special dispensation, this requires tax clearance from SARS plus additional approval from the Reserve Bank (SARB). The most important is your source of funds and offshore investment details for the application to SARS.
SARB approval
If you need to transfer more than R10M per calender year, we can assist with the Reserve Bank application. We work closely with our partner banks that speeds up the process so that our clients do not have to wait months for a reply from SARB.
Tax Emigration
Tax emigration involves informing SARS that your tax status has changed and that indicates how you should, or should not, be taxed in South Africa. Whereas a non-tax resident only pays tax on their South African sourced income and South African sourced asset base.
RandTangle and a tax practitioner assists with the process to ensure that the client is a tax non-resident with SARS. The emigration can be back-dated to the day that the client left South Africa.
If you would like to encash your retirement annuities prior to it reaching its maturity date, the tax migration assists with this as it proves the date you left SA and that you have been a tax resident in your new home for more than 3 consecutive years.
The tax migration assists in proving your residency status to SARS and then we also apply for the emigration clearance so that your retirement annuities can be encashed.