Double tax warning for South African emigrants

 ·15 Jun 2024

Thousands of South Africans emigrate every year, but they should keep several tax considerations in mind.

According to Investec, emigration is a challenging process for many, especially for those who retain a portion of their assets in South Africa after they have left.

“We are frequently asked by non-tax residents who have investments in South Africa what they should be considering from a tax and estate planning perspective,” said Investec.

“To answer that question, we should start by noting that nothing in life is certain but death and taxes, and this holds when you have investments in South Africa.

Those living in South Africa are considered tax residents and are taxed on a worldwide basis. These taxpayers pay tax on their worldwide income and gains.

However, emigrants and bona fide non-tax residents who do not meet South Africa’s tax residency tests will only be taxed in South Africa on a source basis.

This means that they only pay tax on their South African-sourced income and gains. This includes interest income, rental income, proceeds from the disposal of immovable property, dividend income, and lump sums from pensions and annuities.

“As an emigrant or non-tax resident, when taxable income arises in South Africa, South Africa will levy tax on the relevant income, subject to a double taxation agreement (DTA),” said Investec.

“A DTA essentially ensures that you are not taxed twice on the same income by different revenue authorities.”

“It’s important to bear in mind that although South Africa has concluded an extensive amount of DTA agreements, there are some countries, such as Monaco for example, where no DTA is currently in place, and double taxation can occur.”

Only two things are certain in life

Although not a pleasant thought, death is also taxable.

Emigrants or non-tax residents with assets in South Africa should remember estate duties and the deceased estate process (A.K.A. probate).

“Like the position with regards to income taxes, South Africa will levy estate duty on “property or deemed property” situated in South Africa. The definition of South African “property” and “deemed property” is broad and will encompass most assets situated or deemed to be situated in South Africa.”

“Therefore, as an emigrant or non-tax resident, if you have assets that are situated in South Africa or deemed to be situated in South Africa, estate duty will be levied at a rate of 20% or 25%.”

It is also important to check if the country you live in also levies death taxes.

This is crucial as South Africa only has estate duty treaties with the US, the UK, Botswana, Zimbabwe, Lesotho and Swaziland.

Thus, if the emigrant dies in a country that does not have an estate duty treaty with South Africa, they could be exposed to a double death tax.

“Finally, if you have assets situated in South Africa, you may need to go through the deceased estate process in South Africa. Certain assets might only be able to be dealt with by your nominated executor once they have a South African letter of executorship.”

“If you don’t have a South African will to deal with your South African assets, then your offshore will may need to go through a resealing process in South Africa for the South African letter of executorship to be issued.”

“The nature of your South African assets will determine what will be required on death and whether it will be best to have a separate will for your South African assets. It’s critical to obtain advice in this regard to avoid lengthy administrative delays.”

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