When planning your emigration from South Africa, it’s important to make provision for the tax implications of your move. Leaving South Africa is so much more than just packing your belongings and booking one-way flights for you and your family. Sure, it’s probably on your mind to plan for eventualities like canceling your gym contract, your personal trainer and your internet service provider, but did you think to break up with the tax man? Probably not.
Let’s take a look at how tax emigration from South Africa works, what impact it has on your tax status and what you need to know for the journey ahead.
Do South African expats pay tax?
Yes. South African expats will still be expected to pay tax in South Africa if they are still considered to be South African tax residents. While you are still a South African tax resident you will be charged tax on your South African sourced earnings, as well as on your foreign employment income.
What do you need to know about expat tax in South Africa?
- You are considered a South African tax resident if you meet the requirements of the ordinarily resident test. If you fail to meet these requirements, you can still be considered a tax resident if you meet the requirements of the physically present test.
- Don’t let ‘physically present’ fool you. It doesn’t mean you have to be physically present in South Africa in order to be charged tax. It simply means that if you have spent a certain amount of time in South Africa in the recent past, you are still on the tax man’s radar and you’ll be expected to file a tax return, declare all your income and cough up.
- The physical presence test is a time-based assessment that is automatically broken once you have remained outside of South Africa for a period of not less than 365 days.
- While you are still a tax resident in South Africa (at least for the first year after you’ve emigrated), you will still answer to the South African Revenue Service (SARS).
- This means you will pay expat tax in South Africa, but you will have the foreign income exemption to call on in order to reduce your tax liability by up to R1.25 million.
What is tax emigration from South Africa?
Tax emigration is the process of changing your tax status with SARS from resident to non-resident. You inform the tax authority that you are becoming the exclusive tax resident of another country, and they no longer have any claim over your worldwide earnings. Once you are a non-resident you can no longer be taxed on your foreign employment income in South Africa. Tax emigration is effectively the process through which you will inform the taxman that your relationship is over.
However, like with most breakups, it isn’t always a clean getaway. The taxman is going to take your tax exit as one last opportunity to tax you before letting you go. As you guessed it, this has become known as ‘exit tax’. More formally known as ‘Capital Gains Tax’, your status change from resident to non-resident is a trigger for this tax event.
Once you have undergone tax emigration and become a non-resident for tax purposes, you are charged a capital gains tax on your worldwide assets. What this means is that the taxman treats you as if your resident self sold all of your assets to your non-resident self at market value the day before your status changed, thereby incurring a capital gain on which you can be taxed.
How does exit tax work in South Africa?
- Capital Gains Tax is not a separate form of tax, it is simply a charge that is added to your tax liability for the tax period in which you became a non-resident.
- There are some new implications you need to be aware of when ceasing your tax residency in South Africa.
- It is due as soon as you have completed tax emigration and been given the designation of ‘non-resident’ and not at the end of the tax year when you file your last return.
- The value of proceeds: In the case of exit tax, you are deemed to have disposed of your assets the day before you ceased to be a tax resident, at the market value.
If the market value of the asset on this day is more than the base cost, the profit is treated as a capital gain.
Is the total proceeds amount (gain) taxed by SARS?
Now for the good news – capital gains tax (aka exit tax, in this case) in South Africa is taxed at a lower rate than regular income, because only a portion is added to taxable income – 40% to be exact.
- In addition, there is also an annual exclusion of R40,000 that can be deducted from the total capital gain amount.
- For this reason it is advisable to plan the timing of your emigration with the aim of minimising your capital gains tax liability. How do you calculate a deemed capital gain, such as exit tax?
To calculate whether capital was gained or lost, you will need to know the following about your assets:
- The base cost: the price that was paid to acquire the asset plus the amount spent on renovation or improvements.
Read more about capital gains tax (exit tax) and what is excluded.
FinGlobal: cross-border financial specialists for South African expats
We can help you to ensure a smooth financial transition if you’re emigrating, or you’ve already left. One of the major benefits of tax emigration is the fact that you become eligible to withdraw your retirement annuity in full once you’ve become a non-resident and maintained this status for at least three years. As such the benefits of tax emigration need to be carefully weighed against the eventuality of paying the exit tax.
That’s where FinGlobal comes in. We can assist you with ensuring your tax emigration is well planned, well timed and that it has the right financial implications for the next chapter of the life you’re starting in another country.
To see how we can make your tax emigration from South Africa easy for you, contact FinGlobal today.
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