How to navigate tax implications when emigrating from SA
Around a million South Africans have emigrated since 2000 – mostly to the US, UK, EU (predominantly Portugal), Australia, and Canada.
If you are planning to join this group of emigrants, it is important to understand not only the tax system of the country you are heading to, but also your SARS liability.
South Africa’s residency-based tax system means you must pay SARS tax on all worldwide income if you are a tax resident and live in South Africa.
Non-residents are only liable for tax in South Africa on what is considered South African-sourced income.
To become a tax non-resident, you must go through the process of tax emigration.
How to apply for tax emigration
Tax emigration involves informing SARS that you no longer meet tax residency requirements.
SARS uses two main tests to determine your tax residency: the Ordinarily Resident test and the Physical Presence test.
The Ordinarily Resident test looks at where your permanent home is, where your family lives, whether you keep personal ties – like belongings – in South Africa, and whether you return regularly.
If you’re not considered a resident through this test, the Physical Presence test checks how long you’ve been in South Africa.
To be classified as a non-resident, you must spend fewer than 91 days in South Africa in the current tax year, fewer than 91 days each year over the past five years, and no more than 915 days in total over those five years.
To change your tax residency status, you must report your tax emigration in the tax return for the year in which your status changes.
Tax emigration is used to ensure you pay the correct taxes in and out of SA.
If you pay the wrong taxes and then the other country disallows the tax credits, you could pay double tax – as most countries have a time limit to claim back incorrect taxes paid.
Expat tax exemption
If you are working abroad but still a tax resident in South Africa, you must submit tax returns to SARS even if you may not have to pay taxes in SA.
If you have spent more than 183 days outside the country in 12 months, with at least 60 of those days being consecutive, the first R1.25 million earned in foreign employment income is exempt from SA tax.
Foreign income earned above R1.25 million will be taxed in South Africa at the relevant marginal tax rate, while income such as foreign rental income or gains remain fully taxable in SA.
Your absence from South Africa must be work-related, and the exemption will only be allowed after being declared in your personal annual tax return.
Double taxation agreements
South Africa has double taxation agreements (DTAs) with 81 countries, including the UK, Australia, the US, the UAE, Japan, Sweden and Thailand, which means you aren’t taxed twice on the same income.
It is helpful to look at DTAs between South Africa and your new country of residence to ensure you’re not paying too much tax.
These can vary – so it is a good idea to consult with cross-border tax experts to advise you on what to expect.
Capital Gains Tax
When leaving South Africa and changing your residency, you must pay an exit tax, also known as Capital Gains Tax (CGT).
This is calculated on the market value of your worldwide assets including immovable property and investments. SARS will be looking at items like Krugerrands, crypto assets, and global shares.
Assets excluded from exit tax are immovable property, cash, and retirement funds. Exemptions such as an annual R40,000 CGT exclusion may also be factored in.
The CGT rate, which ranges from 7.2% to 18% depending on your tax bracket, may be lower if you leave early in the tax year, making earlier emigration potentially more beneficial.
It can be a complicated process, so it is best to seek professional advice before attempting to alter your tax status.
How much money can you take with you?
South African citizens or permanent residents over the age of 18 can transfer up to R1 million a year under the single discretionary allowance, without the need for tax clearance from SARS.
You can also transfer up to R10 million a year for foreign investments or emigration purposes, but this requires a tax clearance certificate from SARS.
If you want to transfer more than R10 million, you will need special approval from the SARB.
Transferring your RA out of South Africa
South Africa’s two-pot retirement system, which came into effect on 1 September 2024, gives members access to a portion of their funds in their “savings pot”.
However, two-thirds of contributions go to a “retirement pot” and will not be accessible until retirement.
If you emigrate, the retirement pot will only be accessible once you have been a non-resident for three years.
Wealth planning considerations
It is essential to start your planning process at least six months before you depart South Africa as changing tax jurisdictions could have an irreversible impact on your investments.
Some examples of actions you might want to take include selling certain assets or restructuring your living annuities or trusts into other common vehicles.
Cross-border tax is a complex area and it can feel overwhelming. Sable International has the full range of expertise on hand to help, including experts in tax, wealth planning and forex.Chat with us at the Global Citizenship and Emigration Expo from 28 October to 7 November and we’ll be happy to take a look at your unique situation.
Book your complimentary ticket here or stop by on the day – walk-ins are welcome!
Alternatively, get in touch with our expert advisers at [email protected] or by calling +27 (0) 21 657 1517.
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