Double tax warning for emigrating South Africans

 ·20 Aug 2023

Although many South Africans are looking for better opportunities overseas, they must be cognizant of their tax obligations.

With the current economic and political climate, many South Africans are looking to leave the country and settle overseas.

“Over the past two years, we have seen quite a big jump in the number of candidates expressing their interest in seeking opportunities overseas,” said JP Breytenbach, the Director of Breytenbachs Immigration Consultants.

He said that many South Africans cited the lack of growth opportunities in the country as a key reason for their choice to relocate.

“It is evident that with each political tension event in South Africa, the number of enquiries about moving abroad jumps significantly,” he added.

High levels of crime and debilitating power cuts have also been mentioned as a reason why many South Africans are choosing to leave the country.

Crucially, those looking to emigrate need to understand their tax obligations to avoid being taxed by both SARS and the tax administrator in the country you’ve relocated to.

Carla Rossouw from Allan Gray has provided a detailed analysis of what emigrating South Africans need to know about their tax obligations.

Am I a South African tax resident?

You are an ordinary South African tax resident if you are “ordinarily resident” in South Africa.

According to case law, you are a resident in South Africa if it is the country where you return to after your travels.

Hence, a South African can remain ordinarily resident for tax purposes even if you leave the country for a long period and plan to return to South Africa.

SARS looks at several aspects when determining if you are a resident for tax purposes:

  • Your place of business and personal interests

  • Your most fixed and settled place of residence

  • Family and social relationships, schools, places of worship, social clubs

  • Your habitual abode, i.e. the place where you stay most often, measured over time

Suppose you are not ordinarily resident in South Africa. In that case, you will be seen as a South African tax resident if you have been in South Africa for more than 91 days during that tax year and each of the preceding five years or if you have been in South Africa for more than 915 days in the prior five tax years – this is known as the “physical presence test.”

Your tax liability

According to Rassouw, tax residents in South Africa are required to pay taxes on their worldwide income, while non-residents are only taxed on income sourced from South Africa.

Following your emigration, the Common Reporting Standard regime should ensure that you are taxed fairly, as it allows tax authorities, including SARS, to share information.

That said, SARS will continue to recognise you as a tax resident and tax you on all income (local and foreign) in South Africa if you do not change in tax status. This could lead to you being taxed twice in your new country of residence.

Capital gains tax on unit trusts in South Africa is not used for non-South African residents, and their country of tax residence taxes these gains. It is thus the responsibility of the person to declare any capital gains or investment income from the relevant tax authority.

“As far as taxes within discretionary unit trust investments are concerned, your investment manager administers withholding taxes on investment returns such as dividends and interest at a tax rate of 20% and 15%, respectively, or at a lower rate if the double taxation agreement (DTA) between South Africa and your country of tax residence provides for this,” she said.

A DTA is a bilateral agreement between tax administrations in two different countries that looks to prevent double taxation on the same income.

“Proceeds from South African retirement funds, living annuities and endowments are generally taxable in South Africa, but you would need to refer to the applicable DTA between South Africa and your new country of tax residence to determine which country has the taxing rights in each instance,” Rossouw said

“Living annuity income, for example, may be exempt from pay-as-you-earn (PAYE) tax in South Africa if you are a tax resident in a country such as the United Kingdom or Australia, whose DTA with South Africa provides for this (and in this instance, you would need to apply for a tax directive from SARS to provide to your annuity provider).”

Leaving permanently

People waiting to leave South Africa permanently will have to follow the “tax emigration” process:

  1. Complete the “Registration, Amendments and Verification form” (RAV01) on SARS eFiling. Make sure you capture the correct date on which you ceased to be a tax resident under the “Income Tax Liability Details” section. The RAV01 must be updated prior to the submission of your annual tax return to avoid the tax return being selected for manual intervention by SARS.
  2. Look out for a letter from SARS in response to this form and submit the supporting documents that SARS requests, which include the “Declaration of Ceasing to be a Tax Resident”.
  3. Refer to the “Cease to be a Resident” page on the SARS website for more information.

When ending your tax residency, SARS believes that you have disposed of your worldwide assets, excluding immovable property in South Africa, making you liable for Capital Gains Tax.

Worldwide assets used in this calculation include discretionary unit trust investments but not retirement fund savings – this is known as the “exit tax.”

If there are any taxes due to SARS as a result of your tax residency, the taxman may impose administrative penalties and interest.

SARS also now requires greater detail in regard to international fund transfers.

Additionally, she warned that emigration-related decisions will have an impact in the future. For instance, SARS will deny you access to your retirement annuity funds unless you can provide proof that you have been a tax resident in another country for three consecutive years.

Stay on top of it

Although the process may seem complicated, Rossou said that it is relatively simple for South Africans to change their tax residency status.

“Much like filing your own taxes via the SARS eFiling system, letting the authorities know that you are changing your tax residency status is a relatively simple process you can do yourself via eFiling – particularly if your taxes are straightforward,” she said.

“However, managing your tax affairs across jurisdictions can become complex.” She recommended that emigrating South African contact an independent financial adviser or registered tax practitioner for advice.

Read: New emigration tax rules could backfire for SARS: expert

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