The rapid increase of cross-border trade in goods and services, technology, flows of investment and information has brought about an unprecedented period of globalisation.
It is no surprise then, that many South Africans are heading abroad for work and, in some cases, to settle permanently. According to Stats SA, the white population declined by 17,311 people between 2020 and 2021, this despite the fact that between March 2020 and February 2021 the World Health Organisation declared COVID-19 a pandemic and nearly 105 000 movement restrictions were implemented around the world. Evidently, there are many South Africans who have sought to take advantage of the global era and many more who are considering making the move.
So, you make the decision to Emigrate and after months of planning and painstaking deliberation you have finally sorted out your travel and living arrangements, your bags are packed, and you have sold or given away everything that you won’t be taking with you. At this point it appears that everything is in order, but have you taken a moment to consider the financial and tax implications of your move? Often when making the move abroad many neglect to consider the financial and tax implications that come from emigrating from South Africa. As the famous adage goes “If You Fail to Plan, You Are Planning to Fail.” It is crucial to understand the tax consequences of moving abroad and planning appropriately. Which is why TLi Global has decided to provide you with an overview of what you need to consider from a tax perspective before you make the move.
South Africa has a residence-based tax system. This simply means that South African residents are taxed on their worldwide income and worldwide asset base regardless of where that income was earned (subject to certain exclusions). Conversely, non-residents are taxed on their South African sourced income.
It is therefore prudent to give due consideration to your tax status when you move abroad as it will have a massive impact on your expenses.
Depending on your long-term plans it may be preferable to become a non-resident for tax purposes to avoid paying tax in South Africa and in certain circumstances it may be desirable to preserve the status quo and retain your tax residence in South Africa.
Tax emigration is the process of terminating your obligation to pay tax on worldwide income in South Africa. Essentially, this is the process of informing SARS that your tax status has changed.
Prior to March 2021 when the Taxation Laws Amendment Act came into effect, it was possible for one’s status to be changed from resident to non-resident for exchange control purposes without ceasing to be a South African tax resident. This would allow an individual to access and withdraw their South African retirement savings early and transfer the proceeds abroad without terminating their tax residence in South Africa. As from March 2021, in order to access, withdraw and transfer your retirement annuity savings abroad you will need to cease being a South African tax resident. Moreover, one must now prove that they have been non-resident for tax purposes for an uninterrupted period of three years in order to access these savings. It is worth noting that the process of tax emigration, particularly as it relates to accessing your retirement savings abroad, requires authorisation from SARS – it is therefore important that you are tax compliant.
DOUBLE TAXATION AGREEMENTS
Tax systems vary from Country to Country which creates the possibility that a particular income can be taxed twice – by the country in which the income was sourced as well as the country in which the income earner is resident for tax purposes. Tax relief is provided in such instances of double taxation through Double Taxation Agreements (“DTAs”).
DTAs are international agreements contracted between countries that address the possibility of competing taxing rights which can result in one taxpayer being taxed twice on the same income. South Africans contemplating moving abroad must plan ahead and look at what their tax treatment will be considering the DTAs between their destination country and South Africa. If one does not terminate their tax residency in South Africa, the taxpayer may be required to pay tax on their foreign income in South Africa as well as in the country in which the income was sourced. A DTA may ensure that this does not happen. It is worth noting however that not all countries have a DTA with South Africa and this may not always be possible.
It is important to consider the consequences of terminating your tax residency. Depending on your circumstances and consideration of your long-term goals it may be prudent to change your tax status to non-resident. Changing your tax status to non-resident triggers a Capital gains event. This means that you become liable for capital gains tax which is often referred to as ‘exit tax.’ This is because SARS considers you to be selling your worldwide assets to your foreign self – SARS is therefore claiming the tax it would have received on your worldwide assets if you had sold them as a South African tax resident. The Capital gains tax is calculated by determining the value of your assets on the day you become a non-resident.
Evidently, wherever you go tax follows you. It is therefore important to ensure your tax affairs are dealt with prudently. This process is complex and time consuming and it is important that you get good tax advice which is suited to your circumstances and long-term goals. We at TLi Global, are committed to excellence and part of our mission is to raise awareness of the importance of prudent tax planning and ensuring that we provide good and practical tax advice taking into consideration your specific needs and goals. Feel free to get in touch with us for assistance with your tax related matters.
We will be presenting a webinar titled “Emigrating from South Africa in 2021” which will be held on 8 December 2021 at 6pm and will provide an overview of what to consider when emigrating from a tax perspective as well as discussing some popular and attractive countries to settle and work in.
If you would like to attend our webinar series please register at the following link: https://emigratingwebinar.subscribemenow.com/
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