The narrative around the emigration of skilled professionals from South Africa and the impact this may have on our tax and skills base has been garnering significant attention. Various sources have been quoted, in particular the update from the South African Revenue Service (SARS), that more than 6,000 individuals emigrated from South Africa in the prior tax year.

However, it is important to provide some context to these numbers.

Understanding the numbers

If an individual no longer qualifies as a tax resident in South Africa, SARS now requires them to update their profile on the e-filing platform using the RAV01 form. This form is used to update an individual’s status as either resident or non-resident for tax purposes.

The problem is that the updating of an individual’s tax resident status on e-filing also applies to South Africans who left the country many years ago and have not been tax residents for a significant period of time. It is therefore very difficult to obtain an accurate estimate of how many people have emigrated from South Africa in the past year.

Tax residency versus physical presence

Another important point is that the definition of a tax resident is a specific tax construct which may mean that a person is considered a non-resident for tax purposes even though they spend significant time in South Africa.

An interesting question is to what extent physical presence in a particular country is relevant in terms of contributing to the skills and tax base in that jurisdiction.

The working assumption seems to be that individuals who are not physically present in South Africa may not contribute to the country’s skills or tax base. However, there isn’t a linear relationship between the concept of physical presence and a person’s contribution to the country’s skills or tax base.

It is now commonplace to enter a virtual meeting platform and not even know where the other individuals at the meeting are physically located. Individuals who are based outside South Africa, including those who may never have lived in our country, can make significant contributions to our skills base.

Tax implications

In terms of South Africa’s tax base, non-residents of South Africa are only taxed on income and capital gains essentially derived from a South African source and not on a worldwide basis.

However, a distinction should be made between the different concepts of income, assets and the externalisation of such assets from South Africa.

Let’s assume that a South African individual owns a company and decides to emigrate. They will pay capital gains tax on the market value of the shares in the South African company on ceasing to be a tax resident. This is tax-base positive.

Any dividends subsequently declared by the company would still be subject to dividends tax, although they may be taxed at a lower rate, depending on whether a double tax agreement applies. The company itself continues to be a resident of South Africa and is subject to tax on its worldwide income and capital gains.

Depending on the jurisdiction to which the individual relocates, capital gains and income flows in respect of their assets remaining in South Africa may therefore still be caught in the South African tax net.

For a person who has emigrated from South Africa to externalise their assets from South Africa, it is firstly necessary to complete the tax compliance process with SARS. This can be lengthy and complex, particularly with remittances exceeding R10-million.

It is then necessary to obtain approval from the Financial Surveillance Division of the South African Reserve Bank to externalise the assets from South Africa. In this regard, only cash and liquid assets may be remitted from South Africa. In some ways, it is easier for an individual to emigrate from South Africa than for their assets to leave the country.

Of course, the emigration of skilled, talented and often wealthy individuals from South Africa is a net negative for our country. However, it is difficult to obtain accurate information regarding the precise number of emigrants in a particular year.

Also, given the post-pandemic reality of virtual working and the peripatetic world of the globally mobile combined with our tax and exchange control rules, this is a more nuanced topic than it first appears. DM

Peter Dachs is the head of the law firm ENSafrica’s tax department. He writes in his own capacity.