Many South Africans have historically played ignorant or sought to benefit from SA’s exchange control and tax regulations by claiming to be abroad only temporarily. This allowed them to side-step double taxation, claim exemptions, and also utilise their South African taxpayer allowances to move money across borders without applying for financial emigration.
With the clamp-down on tax evasion SARS is essentially forcing South African emigrants to choose a side: they can access their exemptions and allowances by confirming their status as SA taxpayers, or they can sever all ties with SARS and expatriate the proceeds of retirement annuities by confirming their non-resident status.
AIT: Forced to choose a side
We explained in previous articles that the AIT process has grouped the TCS PINs for non-residents and those who wish to use their FIAs together. The rationale for this grouping is that the process itself determines tax residency status without ambiguity.
While the previous process allowed individuals to utilise their allowances and exemptions up until the point where they applied for financial emigration, the new process demands a clear distinction. Those who want access to the proceeds of retirement funds and wish to sever tax ties with SA need to show that they managed their financial affairs as foreign taxpayers for a full three years.
New emigrants or those who did not previously invoke any directives will most likely need to follow the new processes in full in order to cease tax residency. See our previous article about AIT for more information on this process.
One of the biggest issues with the three-year rule is that it doesn’t merely lock down retirement funds (which was the primary driver for financial emigration in the past) but clamps South African-sourced funds off for a full three years under certain conditions. Retaining SA tax residency also holds implications for financial affairs in new jurisdictions which means these drawbacks are quite unavoidable.
South Africans who want to be considered non-residents for tax purposes cannot claim to be ‘temporarily abroad’ as is the requirement for utilising their allowances.
ITR12 prior to departure
In the latest explanatory notes on the new process, SARS stipulated that applications will be rejected for individuals who did not submit income tax returns (ITR12) in the year of assessment before their departure (the year they ceased to be a resident).
This also means that individuals need to have a tax reference number that is active on SARS unless they left SA before 2000.
Capital Gains liability
Individuals have 21 days from leaving South Africa to inform SARS that they ceased to be a resident and declare their deemed disposal of worldwide assets under Section 9H(2) and of the Income Tax Act. This schedule must outline all tax payable on deemed disposal of assets as on the day before they ceased to be a resident.
The problem with delaying this process is that the residency tests – if satisfied – could trigger a capital gains liability as any growth in asset value after the date where an individual ceased tax residency could be subject to capital gains tax.
Since SARS streamlined the definition and treatment of retirement funds - especially with respect to what South African emigrants are allowed to access and when it can be difficult to encash and expatriate the proceeds of SA-sourced retirement funds. It’s important to know what you’re doing before seeking to encash these funds.
South Africans completing the AIT process and having any crypto or arbitrage trading activities will need to disclose information about such financial affairs by completing form AIT TCR01.
SARS is very clear on the fact that any applications that don’t disclose the full view of crypto assets and trading will be declined.
14-day document window
To complete the AIT process most documents/proof provided can not have been issued more than 14 days before the application. This includes:
- Banking statements to prove loan payments
- Trustee/beneficiary loans
- Trust payments
- Proceeds from property sales
- Sale of crypto assets
- Donations made or received
- Trust distributions
- Cash/savings amounts.
The process doesn’t necessarily accommodate the filing of joint taxes or automatic suretyship by primary breadwinners. If SARS deems dependants - whether spouses, parents or children - to be liable for taxes, each individual will need to complete the AIT process to verify that they are not liable for tax.
Rely on the professionals
There are many intricacies to tax emigration and the new AIT protocols which most South Africans will find quite tricky. Completing the process in the wrong order or without all the necessary boxes ticked will create significant delays and may also see you liable for undue penalties if documentation is incorrectly filed.
Why not leave it to the professionals to help you out? Rand Rescue has helped thousands of South Africans with their cross-border finance and knows the ins and outs of tax, forex, and retirement.
The information provided in this article and on this website is intended for general informational purposes only. It is not a substitute for professional advice, whether financial, legal, or otherwise. Before making any decisions or taking any actions based on the information provided on this site, we strongly recommend consulting with qualified professionals who can assess your specific circumstances and provide tailored guidance.