Understanding the difference between emigration and financial emigration is vital if you plan to live or work overseas permanently.
We examine the process of winding down your financial affairs in South Africa, including the tax implications.
Tip: Did you know you are allowed to emigrate while under debt counselling? You can apply here if you are over-indebted.
Emigration vs financial emigration
South Africans emigrating to other countries often mistakenly believe that they no longer have tax obligations in the country, if they leave permanently.
However, this isn’t the case, and some ex-pats have found themselves in hot water with the South African Revenue Service (SARS), says Elelwani Pandelani, head of non-residence and embassy banking at Nedbank.
You must be fully compliant and current with all tax requirements before making the required declarations for financial emigration, Pandelani says.
SARS will also require you to pass the physical presence test, which considers the number of days you are physically present in South Africa, and therefore a resident, during specific tax years.
What is financial emigration?
Khutso Makgoka, legal consultant: expatriate tax at Financial Emigration, says you should consider financial emigration if you plan to move to another country permanently, as opposed to just working overseas for a few years.
This means formalising your non-resident tax status with SARS, and winding down your South African financial affairs. In short, you are making a clean fiscal break with the country, while remaining tax compliant.
On average, it takes four to eight months to complete the financial emigration process. It does not affect your citizenship, and you can still invest in South Africa and come to visit for as long as you wish.
Your assets as a non-resident
The correct procedure must be followed if you wish to become a non-resident of South Africa for tax purposes, says Pandelani. This is especially important if you wish to retain assets such as properties or retirement investments.
“Failing to do so means retaining tax liability for those assets, and any income they generate, such as interest growth or rental income,” she notes.
If you plan to withdraw your retirement savings, you will first be expected to complete the financial emigration process.
The process for removing your finances
If you choose to remit your finances abroad after emigrating, you’ll need to obtain an Approval of International Transfer (AIT) Tax Compliance Status (TCS) PIN from SARS to approve the transfer of your funds.
This may not be required for all transfers, but it does mean that you’ll have to plan remittances out of South Africa ahead of time, says Makgoka.
As a tax resident, you can remit up to R1m in a calendar year, which is your single discretionary allowance (SDA). You need an AIT TCS PIN from SARS to remit any further amounts.
A non-tax resident will generally require approval to remit any capital funds out of South Africa, which also requires an AIT TCS PIN from SARS.
The best option for most
“Financial emigration isn’t essential for every person leaving South Africa, but we have found that it is the best option for most,” says Pandelani.
“While the process can be intimidating, it’s also a good incentive to ensure that your asset portfolio is structured in the most tax-efficient manner.
“This will maximise your long-term financial benefits and help you to avoid unexpected tax shocks.”
Tip: Paying off your debts will free up cash, and make it easier for you to emigrate. Enquire about debt consolidation today.