Beware Expat Saffas: The Taxman Is Coming
There are very few emigrants of any country who could be said to leave their home country purely for the sake of a better tax rate. Those few individuals who have that luxury are also usually those individuals who can readily pack up and set off to a new destination on a whim.
For most of us the decision to move abroad is a deeply personal one – a yearning for a new adventure, the peace of mind that we can sleep with our doors open at night or the dream of a fresh start with our children where we can establish new roots.
Unfortunately, financial obligations as imposed by the jurisdictions within which we live or come from affects everyone – irrespective of or motives for emigrating.
Beware the tax snare!
Once abroad, few South Africans consider the legalities of their income streams from a South African perspective. Most individuals push their SA residency to the back of their minds, utilising only those emotive aspects of their past as anecdotes around the foreign braai. And to date saffas have been relatively untouched by the long arm of the law. Feigning ignorance has been a relatively acceptable excuse which could see you get a slap on the wrist.
But it’s time for South Africans to perk up their ears and wipe the grime of forgetfulness from those spectacles as the South African Revenue Service is picking up pace in their quest to oust tax evaders.
Collecting the shortfall
The changes proposed by the National Treasury would not see the introduction of new laws to govern income across borders, instead it’s calling for a complete repeal of section 10(1)(o)(ii) of the Income Tax Act 58 of 1962. Draft legislation to the effect has already been submitted and, once ratified, the amendments will come into effect in 2019.
The section in question deals specifically with tax exemption on foreign sourced income of South Africans temporarily working abroad or collecting a foreign-sourced income. Individuals who have qualified for the exemption to date need to spend a total of 61 continuous days and an aggregate of 184 days in a 12-month period rendering services outside South Africa. The subsequent repeal would streamline tax treatment which means remuneration received for aforementioned foreign services would no longer be exempt. The proposed amendment was first noted in Pravin Gordhan’s budget speech earlier this year where he’d detailed the Financial Ministry’s intent to repeal the exemption.
Of course, those living in regions with similar tax treatment, thresholds and tax rates needn’t be too concerned with the implications of such a repeal. The amendment is aimed at addressing the tax shortfall on income between South Africa and countries with a lower tax rate or higher thresholds. If, for instance, you reside in a country with a 0% tax rate, you will be liable for the full shortfall of up to 45% of your earnings.
The South African personal income tax rates for 1 March 2017 to 28 February 2018 are:
What South African expats can do if section 10(1)(o)(ii) is repealed
Should section 10(1)(o)(ii) of the Income Tax Act be repealed there would be little recourse for South Africans but to bite the bullet. South Africans living or working abroad who have leveraged this exemption to their advantage thus far will need to consider the benefits of financial or formal emigration.
As a South African emigrant you can legally cut your ties with SARS by applying for financial emigration. Though it may not have been a necessary step for you before, the repeal, could see many South Africans would cede a significant chunk of their regular income streams to the tax man. This is also beneficial for those who are staying abroad indefinitely with no intention of returning to South Africa.
In some cases individuals may be required to complete an “ordinarily resident” assessment to determine the validity their application to change their tax residency and subsequent tax status.
What is financial emigration?
Financial emigration is an application to the South African Revenue Service and the South African Reserve Bank which terminates your South African tax status. This application doesn’t affect your South African citizenship in any way – once approved it simply means you are no longer deemed a tax resident of South Africa for exchange control purposes.
But I’ve hear that financial emigration is a difficult process?
Financial emigration may take a while to administer – but it all depends on your individual financial portfolio. Should you still have assets left in South Africa, the process could, however, allow you to encash and transfer the proceeds of assets like retirement annuities to your new home – a concession which you wouldn’t be privy to while still a tax resident of South Africa.
How does financial emigration work?
Rand Rescue can assist you with your financial emigration – with years’ experience in managing finances for South African expats across the globe we understand the requirements, have all the necessary paperwork and have managed the process for thousands of applicants with a 100% success rate.
First, we’ll do a policy search to determine the total value of all your assets in South Africa and the best course available for transferring these funds abroad. We’ll discuss your options with you and submit the necessary applications to your financial services providers, SARB and SARS.
You will be asked to choose a preferred banking partner for opening your blocked rand account (emigrant capital account), which will be used for all further transactions between your new home and South Africa. Contrary to the intimidating name, a blocked account doesn’t block your access to funds, it merely means your financial affairs in South Africa will be overseen by a legitimate foreign exchange specialist at your appointed bank. Once you’ve been granted tax clearance and your financial emigration is approved, Rand Rescue will arrange for the transfer of all necessary funds to your offshore account.