Tax Emigration & Non-Tax Residency
“Many think that by merely not living in South Africa currently, they are therefore not a tax resident of SA. This is an extreme over-simplification and has got many in trouble with SARS in the past.”
What is financial emigration at SARS?
The process of Financial Emigration terminates your tax residency status with the South African Revenue Service (SARS). It formally closes your affairs with SARS and is evidenced by a Tax Clearance Certificate – Emigration and a Section 9H deemed disposal (also known as your “exit tax”).
- As a South African tax resident, you pay tax based on your worldwide income and your worldwide assets.
- Whereas a non-tax resident only pays tax on their South African sourced income and South African sourced asset base.
In its 2021 national budget, Treasury said that amended rules around financial emigration are set to come into effect from 1 March 2021.
The new financial emigration process will include:
- A focus from SARS specifically on tax residency in terms of the South African tax residency tests;
- Tax residency in South Africa is determined by two tests – namely, the ‘physical presence’ and the ‘ordinarily resident’ tests.
- Anyone considered ordinarily resident includes:
- Those living in a place with some degree of permanence
- Those with a permanent home
- Those who have their belongings stored
- Those who regularly return to a place following temporary absences
- The physical presence test:
- 91 days in aggregate during the tax year under consideration;
- 91 days in aggregate during each year of the five tax years preceding the tax year under consideration; and
- 915 days in aggregate during the above five preceding tax years.
- The last basis on which a taxpayer may declare non-tax residency is by a Double Tax Agreement – Here you will need a letter from your foreign tax authority stating that you are an exclusive tax resident of that country.
- The application for an Emigration Tax Clearance Certificate, with supporting documents to prove non-resident status;
- An “exit tax” (Capital Gains Tax) calculation on worldwide assets, in terms of section 9H of the Income Tax Act;
- The day before you become a non-resident for tax purposes, you will be deemed to dispose of your worldwide asset base at market value. This triggers a Capital Gains Tax (CGT) event – also known as an exit charge.
- However, any fixed property situated in South Africa is excluded from this equation as it is always subject to South African tax.
- A stringent audit by the SARS auditors, and potentially by the dedicated SARS Foreign Employment team; and
- Approval by SARS before any funds may be expatriated by an authorised dealer based on emigration.
- After you become a non-resident, you are no longer required to submit a South African tax return, unless you still have assets left in the country that are generating streams of income.
- Friday, 1 September 2023
- Access the Facebook Live event recording
- Presenters Bianca Roux and Wessie van der Westhuizen
For further assistance please contact our offices
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Kindly note this article is intended for general information purposes only and does not constitute accounting, tax, nor regulatory related advice. Should you need advice, please contact one of our practitioners.