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Why moving overseas doesn’t have to be a taxing affair

Why moving overseas doesn’t have to be a taxing affair
Illustrative image sources: Adobe Stock | Waldo Swiegers / Bloomberg / Getty Images

According to Statista, about 30% of South Africans said in 2022 that they were thinking of emigrating but had not yet made enquiries. Another 14% said they were seriously considering emigrating.

If you are one of those contemplating a move to another country, Carla Rossouw, head of tax at Allan Gray, says there are several points you need to note around tax residency:

There is no formal, final or financial emigration anymore. “This was the process you would have followed with the South African Reserve Bank when you wanted to inform them that you were giving up your South African residency status, in order to externalise funds.

The assumption made by many at the time was that you also automatically ceased to be a South African tax resident. But that wasn’t necessarily the case.”

As of March 2021, you have to engage with the South African Revenue Service (SARS) to cease tax residency, and this is not the same as citizenship or nationality.

“When you cease tax residency you don’t automatically renounce your citizenship, and vice versa. In other words, when you renounce your citizenship, you could still be deemed a South African tax resident and be liable for tax,” Rossouw says.

“In addition, it is important to understand that you could still be considered ordinarily tax resident in South Africa even though you are not physically present in the country. Failure to properly manage tax residency can lead to unexpected tax liabilities and complications, particularly for individuals working abroad with the intention to return to South Africa.”

  • Tax residency forms the basis on which you are taxed in South Africa. South African tax residents are liable for tax in South Africa on worldwide income. Non-residents are only liable for tax in South Africa on what is considered South African-sourced income.
  • ‍Breaking tax residency. Breaking tax residency via the SARS tax emigration process is a one-off event that you should only consider if you have no intention of returning to South Africa. You can, however, also cease tax residency on an annual basis via the application of a Double Taxation Agreement. This agreement means that only one country is assigned exclusive taxing rights to the income.
  • Breaking tax residency could lead to potential exit charges and residual tax implications. “The exit charge is important because you need to make sure you have sufficient liquidity available to settle this liability. This tax is triggered on the day you board the aircraft and leave the country. Provisional tax payment is due immediately,” Rossouw warns.  Check the website of the Organisation for Economic Cooperation and Development (OECD) for country-specific tax rules, which determine when you are a tax resident in a foreign jurisdiction.
  • Common reporting standards between OECD countries mean that regulators are increasingly sharing information. If a revenue authority picks up any information which “links” you to South Africa, they are obliged to share that with SARS. SARS would be within its rights to enforce penalties if you owe tax.
  • Failure to inform SARS may also hamper access to your retirement funds, which only become available three consecutive years after you’ve ceased tax residency.
  • Living annuity income. South African legislation specifically prohibits the transfer of living annuities to other financial service providers abroad. So, if you have moved abroad and ceased your tax residency, you may still incur a tax liability on your annuity income. The issue arises because this income falls within the South African tax net. DM

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