Pre 1st March 2020 –
Many South Africans are employed in foreign countries. Currently foreign remuneration is exempt from income tax in South Africa if compliant with the “183/60 tax exemption” in the Income Tax Act. On the 1st March 2001, SA adopted a “residency-based” income-tax system. This means that an individual pays income tax in the country where they live and work for the majority of the year (determined according to a determination in the Income Tax Act). If a SA citizen lives and works in a foreign country with a Double Taxation Agreement (DTA), such as the UK, for most of the year then they should be treated as a UK taxpayer and pay income tax in the UK. This also means that if they spend most of the year living and working in a country where there is no income tax, for example Saudi Arabia, then they pay no income tax in Saudi Arabia and no tax in South African. So they pay no income tax at all.
Post 1st March 2020 – Taxation Laws Amendment Act 2017
SA citizens working overseas will in future pay income tax on a portion of their offshore earnings. .
The exemption has been capped at R1m offshore remuneration. Normal tax rates will apply to the balance of the remuneration.
Example: If a person earns R1, 100,000 in foreign salary or income then the first R1m will be exempt from tax in SA. SARS will levy tax on the R 100,000 balance.
What is formal or financial emigration?
Financial emigration, also known as formal emigration, is the process whereby a SA resident applies to the SA Reserve Bank (SARB) to change his/her residency status from resident to that of non-resident.
Should I emigrate financially?
Exiting the SA tax system is not a simple process. The complexity of an application will differ depending on a person’s circumstances. Financial emigration may not be the appropriate solution for all. An individual should consider the options and be aware of the costs. One need not be present in SA to begin the process as it can be done from abroad.
It is important to obtain professional advice before making decisions or launching applications regarding financial emigration.
A benefit of financial emigration is that retirement savings and annuities may be withdrawn and transferred offshore, even if the member is still below the age of 55.
Another benefit, of particular interest to South Africans, is the protection that this offers against Rand volatility.
Financial emigration will not affect a South African’s right to retain their SA citizenship or dual citizenship. It is thus a purely financial process.
Before a person can start the process of formal emigration his or her tax affairs must be in order and up to date.
Once a tax clearance certificate has been obtained from SARS, an application is lodged through a South African Bank also known as an authorised dealer (AD) of the SARB.
All assets need to be declared to the SARB.
The AD applies at the SARB for an Exchange Control Approval Number (ECA) and afterwards a blocked account will be opened (alternatively an existing account may be converted into a blocked account). An emigrant is limited to one blocked account.
Once the financial emigration process has been completed, all offshore fund transfers must flow via this ‘blocked’ account.
Capital acquired and income earned post formal emigration need not flow through this blocked account. Typically inheritances received once you have been formally emigrated can be paid by the executor to your foreign bank account.
Should you only leave a pension or living annuity behind, there is no need for a blocked account as the fund can pay the income directly into your foreign bank account.
Funds allowed to be taken out of South Africa
The SARB allows emigrants the following facilities:
Foreign Capital Allowance (FCA) – R10 million per adult per calendar year or R20 million per family unit per calendar year.
In the year of departure, a travel allowance of up to R1 million per adult and R200 000 per child under the age of 18 years is allowed. The travel allowance may not be accorded more than 60 days prior to departure; and
Export of household and personal effects, motor vehicles, caravans, trailers, motorcycles, stamps, coins and minted gold bars (excluding coins that are legal tender in SA) within an overall insured value of R2 million.
Both listed and unlisted equities may be transferred out of SA as part of your annual R10m FCA.
Any remaining assets in SA will be blocked, but can be used locally for any purpose.
Financial emigration will trigger a capital gains event on your worldwide assets (excluding fixed property in South Africa). It is recommended that you seek advice from someone with cross-border financial – and tax planning experience.
In his 2018 blog Hugo van Zyl (a qualified Chartered Accountant (South Africa), registered Master Tax Practitioner (South Africa) and Trust and Estate Practitioner) expresses the opinion that prospective emigrants can manage the formal emigration process themselves. He will be able to analyse a client’s position per telephone conference and suggest the best solution. He can assist with the entire formal emigration process.
Article by Regina Viljoen
2019 SAIT Webinar: Migration versus Financial Emigration – presenters (Hugo van Zyl and Prof Piet Nel)
2018 Blog – Hugo van Zyl (email: email@example.com)
2019 April – JTC News Letter – JTC Chartered Accountants (SA) Inc <firstname.lastname@example.org>
Article by Tim Mertens, chairman of the South African arm of the Sovereign Group
2018 May 22 – New tax laws for offshore workers. Article by by Tony de Wijn