The Tax Rules Of Leaving South Africa
People are moving and working between different countries more now than ever before. This trend is particularly common with South Africans with a UN report from 2020 putting the number in excess of 900,000 people abroad.
Considering in 2023/24 tax year, there were only about 7 million individual taxpayers in SA, it becomes clear that expats might be getting more attention from SARS in the future.
This article will provide insight into some of tax implications SA expats may be confronting.
Common Questions From South African Expats
Below we consider some of the key questions that are asked by our clients:
I’ve left SA and pay taxes in my country of residence, so what’s the problem?
I hear this a lot, SA expats thinking that the fact that they live abroad and pay taxes to their host nation under the impression they have severed their ties with SA and SARS. This is a common misconception.
The reality is that until you have gotten non-resident tax status you are obligated by law to do tax returns in South Africa. Having moved abroad and not returned for many years does not automatically make you a non-tax resident or relinquish your obligation for reporting.
Tax immigration or financial immigration as some put it is a process, and it starts by getting your tax affairs up to date. What this usually means in practice is doing outstanding tax returns from the last time you filed a return with SARS and obtaining tax compliant status.
My tax affairs in SA are up to date, and I want to apply for non-resident tax status. Is there anything I should be aware of?
In short yes, the most significant of which is Capital Gains Tax. South Africa like most other countries taxes you on your worldwide earnings and assets. Tax immigration is a deemed disposal of your worldwide assets and thus may have significant Capital Gains Tax implications.
A case study illustrates this best:
Piet is an engineer that left South Africa in 2010 for contract work in the Middle East. He has moved his family abroad and does not intend to move back to South Africa. He has bought a house in Portugal where intends to retire and has an investment portfolio of international exchange traded funds as part of his retirement strategy.
He owns no property in South Africa.
He has never returned to South Africa and filed his last tax return to SARS in 2010.
He’s been made aware of the fact that he is still considered a tax resident of South Africa even though he has no intention of returning. The value of both his home in Portugal and investment portfolio have grown significantly in hard currency terms since purchase.
When Piet applies to sever his ties with SARS he may be liable to pay Capital Gains Tax on these assets even though he does not actually sell them as tax immigration is a deemed disposal.
I have been out of South Africa for many years and have assets abroad. What happens if I pass away?
Again, the authorities will consider you a tax resident of SA until you formally complete the process of changing your status. In the case of your death there may be a plethora of issues from a tax point of view. Estate duty in South Africa is calculated at between 20 and 25% on your worldwide assets and only R3.5m is exempt.
In current exchange rate terms that’s roughly €172,000.00 or $188,000.00.
Certain exclusions do exist particularly to spouses but given the exchange rate, estate duty becomes a real issue very quickly. Death is also considered a deemed disposal for Capital Gains Tax purposes and again worldwide assets will be considered.
Financial Advice For South African Expats
Any advice should carefully consider your specific goals and situation as there is nuance in each case.
There are however a few questions that can guide your thinking:
Is my intention to return to South Africa? If not, then applying and obtaining non-resident tax status should be a serious consideration.
What assets do I have and what is the potential capital gain that could be realised by a deemed disposal? Remember that even though you might not actually be liquidating your assets you will be taxed as if you are. A secondary question here could also be: Do have enough liquid assets to pay the necessary taxes?
Is there a Double Tax Agreement between South Africa and my country of residence? While you are considered a tax resident of South Africa and another country the DTA, if one exists, will determine who has the right to tax you. It is important to understand what this stipulates and what relief is available to you if any and how to apply for that relief. Do not assume relief is automatic as this is not the case and there are a number of ways SARS will test whether you qualify.
A professional adviser experienced in dealing with these matters, or even better one that has been through it themselves, will guide you in the process and help you consider all the important factors.
The Wealth Genesis has an advice team dedicated to servicing South African Expats around the world. If you’d like to know more, contact our South African Expat Financial Adviser:
adam@thewealthgenesis.com
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