Who should tax emigrate?
Anyone who has left South Africa on a permanent basis without the intention to return to South Africa should seriously consider tax emigrating from South Africa. This would exclude South African residents who are temporarily abroad for work, travel or other purposes.
What is Tax Emigration?
Tax emigration is the process by which you notify the South African Revenue Services that you are no longer a tax resident of South Africa.
Why should I tax emigrate?
The effect of tax emigration is to formally notify SARS that you are no longer tax resident in South Africa. Until such time as you have done this, SARS has a legal right to require you to continue to submit tax returns and to request their share of your worldwide earnings.
Naturally, SARS are bound by the terms of the UK SA Double Taxation Agreement but, even if you don’t owe them any tax in terms of that agreement, you will still have to report those earnings to SARS.
Once you have tax emigrated you no longer have to report and pay tax on your non-SA earnings. However, if you still have earnings in SA you must continue to report and pay tax on those.
What happens if I don’t tax emigrate?
SARS will still require you to submit a tax return every year. This return must include information about your worldwide earnings. If you do not submit a return, SARS will probably issue a penalty for non-filing. This penalty is levied monthly for every tax return that is outstanding. The penalties vary from R200 to R4,000 per month per return.
When should I tax emigrate?
Whilst the Income Tax Act requires you to notify them the day you leave the country the practicality is that, if you do, your life with them will become a bit more difficult. In practice, it is best to begin the process once you have passed your first tax year end in the UK.
There is no requirement to tax emigrate on the same date as you physically emigrate. Whilst it is easier from a documentation perspective it may not be relevant to your personal circumstances and should be discussed with a professional cross border tax advisor.
You do not need to delay the tax emigration process until you have permanent residence in the UK. It can be done at any time. This is primarily guided by your intention regarding the future. If that is to remain permanently out of South Africa, then you should tax emigrate as soon as practically possible.
Wat happens in the year I tax emigrate?
From a tax perspective there are 2 tax events you should be aware of.
Firstly, your tax year is split by the date on which you tax emigrate so your primary rebate is reduced by the pro-rata period for which you were not in the country.
Secondly, you need to include a Capital Gains Tax section in your tax return for the period ending on the date you cease tax residency.
What happens after I tax emigrate?
Once you have tax emigrated you need to notify your commercial bankers. Your bank will then convert your existing account to a non-resident account. These accounts are not as restricted as the old “blocked rand accounts”. You can continue to receive money into this account, and you can spend the funds in South Africa or transfer funds overseas from the account. Please note that funds in a non-resident account are not freely transferable overseas but the restrictions are not prohibitive. You will need to notify the bank of the source of the funds and provide either a SARS Good Standing Tax Clearance Certificate or an “Approval for International Transfer” certificate.
Tax Emigration has no impact on your insurance policies. You can continue to pay premiums from your non-resident account or you can make the policies paid up.
Tax Emigration has no impact on your retirement policies. You can continue to pay premiums from your non-resident account or you can make the policies paid up. Once you have been Tax Emigrated for 3 years you can withdraw 100% of the value of the funds subject to the normal tax rules. Consult both your broker and a skilled tax advisor BEFORE making this decision.
Tax Emigration has no impact on your other assets – you can continue to deal with them as you wish.
Subject to your commercial banker’s approval, you can continue to have a mortgage bond over any fixed property you have in South Africa. If you choose to buy a new property once you have emigrated you are also permitted to raise a bond to help satisfy the purchase price. Obviously normal credit vetting will occur.
Non-resident Rand accounts may not be overdrawn without the permission of the SA Reserve Bank.
Current SARB guidelines allow the continued use of South African issued debit and credit cards “provided that the expenditure is settled in foreign currency or Rand from a Non-resident Rand account in the name of the non-resident and/or Rand from a vostro account held in the books of the Authorised Dealer.”
What is “Exit Tax”?
Exit Tax is a colloquial name for the Capital Gains Tax that one is required to pay when emigrating from South Africa. It should be included in your tax return in the year that you tax emigrate and is a normal SA Capital Gains Tax calculation based on your worldwide assets.
It deems the value at the date you leave to be the “sale value”. Once you are a non-resident for tax purposes any further growth on your assets is not subject to SA CGT. There are some exceptions to this general rule however.
All non-residents are liable to CGT on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property. Any future disposal of those assets will incur a CGT charge on the gain from the date you emigrated to the date of sale.
Can I offset the Exit Tax against a future CGT liability in the UK?
No. Sadly it is the price of exiting South Africa and there are no offsets.
Will I still have to complete a tax return after I tax emigrate?
If you still have income in South Africa you will still need to complete SARS tax returns. If you don’t have any SA income it is always best to complete the return in the year you leave.
What’s the difference between tax emigration and the new “Approval for International Transfer”?
Tax Emigration is the process of notifying SARS that you are no longer tax resident in South Africa. This is a process that every emigrant should undertake.
Approval for International Transfer (AIT) is a separate application used to:
authorise the transfer of substantial funds out ofSouth Africa (either before or after emigration); and
obtain authorisation for the withdrawal of 100% of any retirement funds you may have in South Africa. It is important to note that this is only the 1st step in that process and the remaining steps are crucial to minimising your overall tax cost of withdrawing those funds.
It is important to note that an AIT is only valid for 12 months whereafter a new application has to be submitted. By contrast Tax Emigration is a once of process.
Tell me more about the new “Approval for International Transfer”
The new “Approval for International Transfer” (AIT) is simply a consolidation of application forms at SARS. Prior to the release of this, if you were a South African resident wanting to move funds/assets in excess of R1m overseas then you would complete a “Foreign Investment Allowance” (FIA) application. If you were not a South African tax resident you would complete an “Emigration Tax Clearance Status” (ETCS) application. Both applications required the same information and led to the same end result so the new AIT application replaces both the FIA and ETCS applications.
What if I have not completed a tax return since I left South Africa?
In all likelihood SARS will be applying monthly non-filing penalties to your account. These are charged monthly for each tax return that is outstanding. Additionally, an application for Tax Emigration or AIT will be rejected by SARS if there are outstanding tax returns and/or monies.
Must I settle my SARS account if I have left the country?
Yes. Like any debt, emigration does not expunge the debt. It remains due and payable and will be subject to an interest charge until it is settled.
What if I decide to move back to SA after I have tax emigrated?
It is very easy to reverse the process and be registered as a South African taxpayer once again.
Does Tax Emigration affect any future inheritance I might receive?
Surprisingly formal Tax Emigration makes it easier to get your cash and/or shares inheritance out of South Africa. Once you have your “Notice of Non-Resident Tax Status” letter the executors of the estate and the estate’s commercial bankers can release the funds and/or shares to you overseas.
You will also need to supply the commercial banker with the final Liquidation and Distribution account showing the Master of the High Court’s reference number to prove beneficial entitlement.
As many executors do not deal with estates that have non-resident beneficiaries they are often unfamiliar with the requirements on them and that leads to them delaying the process. In this regard we have EXCELLENT contacts whose sole task is to wind up deceased estates quickly and efficiently.
Does Tax Emigration affect distributions from inter vivos and/or testamentary trusts?
No. There are some documentation requirements but the SARB permits the transfer of capital and income from both inter vivos and testamentary trusts.