In its 2021 national budget, Treasury said that amended rules around financial emigration are set to come into effect from 1 March 2021.
Financial emigration is the process used by many South Africans abroad to formalise their non-resident status for both tax and exchange control purposes.
“Since the initial announcement, there has been zero public consultation, draft Regulations or anything else publicly released on exactly what the new process will look like,” says Jonty Leon, legal manager at Tax Consulting South Africa.
“However, finally the South African Reserve Bank (SARB) has released its comments to authorised dealers on how the new regime will commence.”
With the new regime comes a host of positive and negative changes, said Leon.
“Positive is that the antiquated legislation around exchange control for the process is completely falling away.
“However on the other hand, the tax treatment of the process will be more stringent with a focus on tax residency only, potentially making it more onerous to overcome the burden of proving non-resident status.”
The following is falling away from the financial emigration process:
- SARB MP336(b) form and application;
- Requirement for an authorised dealer to attest the application;
- Requirement of SARB approval before conclusion of the application; and
- Archaic restrictions on bank accounts after they have been converted into non-resident accounts.
The new financial emigration process will include:
- A focus from SARS specifically on tax residency in terms of the South African tax residency tests;
- The application for an Emigration Tax Clearance Certificate, with supporting documents to prove non-resident status;
- An “exit tax” calculation on worldwide assets, in terms of section 9H of the Income Tax Act;
- A stringent audit by the SARS auditors and potentially by the dedicated SARS Foreign Employment team; and
- Approval by SARS before any funds may be expatriated by an authorised dealer based on emigration.
Leon said that tax residency in South Africa is determined by two tests – namely, the ‘physical presence’ and the ‘ordinarily resident’ tests.
“Many think that by merely not living in South Africa currently, they are therefore not tax resident of SA. This is an extreme over-simplification and has got many in trouble with SARS in the past.
“Careful consideration of all aspects of both tests must be undertaken on an individual basis with a taxpayer, determining on a balance of probabilities whether they are able to overcome their burden of proving non-residency.”
Leon said that South Africans should be cautious when rushing into making this declaration to SARS when this is not truthful, or provable with objective evidence.
Even making a mistake these days can land one in hot water, especially after the amendment to the Tax Administration Act which removed the term “wilfully” when handling non-compliance.
“This amendment has provided SARS with greater clout to hand over taxpayers for prosecution, when claiming negligence or a mistake”.