When you moved abroad, you packed up all your possessions and shipped them off to their new home in a foreign country. Tax Emigration is similar in that you also need to change your tax status to ensure that your tax obligations are fulfilled with the correct jurisdiction.
Before 1 March 2021, South Africans living abroad could change their tax residency by completing a process called Financial Emigration. This process was jointly facilitated by the South African Reserve Bank (SARB) and the South African Revenue Service (SARS). Those who didn’t want to formalise the process could avoid tax payments by applying for tax relief under a Double Taxation Agreement (DTA).
When the SARB scrapped exchange control they handed over the reins to SARS with regards to determining each individual’s tax status and obligations as well as the new processes.
SA's residence-based tax system
South Africa has a residence-based tax system, which means all individuals considered tax residents are liable for taxes to South Africa on their worldwide income, irrespective of where this income was sourced.
In the past, many South African emigrants considered their liabilities done and dusted the moment they set off for distant shores. This tactic did work for the most part since it was generally quite easy to prove one’s foreign tax residency under the vetting criteria of the physical presence or ordinarily resident tests.
Those who could confirm that they resided predominantly offshore and their primary economic and social activities were conducted outside SA could readily pass these tests. It was also far more difficult for SARS and the SARB to track financial transactions in other countries or between jurisdictions – a problem that has been remedied by the Automatic Exchange of Information (AEOI). While the AEOI has been operational for several years, South Africa – along with several other nations – was a bit late to the party, which constrained the amount and type of data shared across borders.
Why should you change your tax residency?
The most obvious reason for changing one’s residency for tax emigration is to avoid liabilities to a country where you no longer reside. Although financial emigration was generally only undertaken by those who wished to encash their retirement annuities, tax emigration is a crucial undertaking for all those who wish to cut ties with SA indefinitely.
The new restrictions on emigration withdrawal applicable from 1 March 2022 require that all SA emigrants confirm their non-resident status and maintain this for a period of three consecutive years in order to cease their tax residency and extract their retirement funds.
Even if you’ve satisfied the three consecutive year requirement abroad, SARS notes pertinently that applications for retirement fund withdrawal will be rejected had individuals not informed them that their residency ceased.
This is a bit contradictory given the three-year rule is specifically geared towards confirming non-residency for tax purposes retroactively.
The other issue is that the new tax compliance system on e-filing has grouped the previous Emigration Tax Compliance Status (TCS) PIN for non-residents with the PIN previously used by resident taxpayers who using their R10-million Foreign Investment Allowance (FIA) to transfer funds offshore. Given international compliance with financial surveillance, individuals who haven’t obtained their TCS PINs may be prohibited from financial activities offshore since financial institutions need to comply with both local and foreign regulations where applicable.
How does the process work?
There are two main routes for tax emigration depending on:
- whether you’ve previously informed SARS that you’ve ceased to be a resident
- whether you’ve confirmed your tax compliance with SARS
Those who already informed SARS of their change in tax residency and have maintained their tax compliance status may already satisfy the requirements of the three-year rule, which means that they simply need to formalise the process by obtaining the SARS Non-Resident Tax Status Confirmation Letter. If do not satisfy this criteria you will need to complete the process below.
The tax emigration process explained
The first step for completing tax emigration is notifying SARS that you ceased to be a resident. This is done by completing the Registration, Amendments And Verification Form (RAV01) on eFiling and indicating the date on which you ceased to be a tax resident under the Income Tax Liability Details section.
In order to qualify, you will also need to provide a letter of motivation for ceasing tax residency, a copy of your passport for verification of your entry and exit from SA, and satisfy the conditions of the ‘Cease to be ordinarily resident’ or ‘Cease by way of the physical presence’ tests. Alternatively, you may qualify as a non-resident under a DTA application.
This notification will trigger a deemed disposal of capital gains tax: you are deemed to have disposed of your worldwide assets, excluding immovable property in South Africa. This also means SARS will no longer tax you on your worldwide income, and only on income sourced from South Africa.
You also need to obtain your TCS PIN via eFiling, which is the tricky part. Since the Emigration Tax Compliance Status PIN no longer exists, South African emigrants will need to complete the same process as tax residents who want to transfer funds offshore under their FIA. This is a dilemma for those who have no funds to transfer offshore or are already considered taxpayers elsewhere.
Avoid the hassle of completing the process by yourself, let us assist you.
It’s not advisable to attempt tax emigration on your own unless you have a proper grasp of the regulations, requirements, and processes. It’s not merely hazardous due to the sheer bulk of information and steps required - but a matter of practicality.
eFiling does not accommodate updating all details remotely, which means some activities can only be tended to at a SARS branch. Obtaining all the necessary documentation from various banks, insurers, investors, and tax authorities within the requisite window is also a tall task to manage on your own.
Rand Rescue can assist you throughout the process and ensure you are compliant without protracting the process further. We’ve assisted thousands of South Africans with their cross-border tax and financial affairs and with branches in various locations across the world we are able to do the legwork on your behalf. Get in touch and we’ll get the ball rolling with an obligation-free consultation to determine your needs.
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.