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Understanding the financial consequences of emigrating
If you are considering emigrating, it is important to have a holistic picture of all the South African tax (SARS) and South African exchange control (SARB) implications.
Important notice
This article is outdated as the emigration process it explains has changed.
Please read our latest article, What to consider before you emigrate, and click here to view our latest emigration guide.
Why you want to emigrate is critical to understanding the financial consequences and planning for these
Clients often tell us they want to emigrate. However, when we start unpacking this, we quickly realise that they don’t want to leave the South African lifestyle − what they really want is a plan B. Likewise, South African residents often leave South Africa temporarily with the intention to return at a later date. It is critical to understand your objective so that you can understand the financial impact and make informed decisions.
The ideal outcome will depend on your unique circumstances, which is why professional advice is essential
Below are a few general guidelines to consider when deciding whether to emigrate or have a plan B:
- What will the financial gain be if you were to emigrate versus building a plan B?
- Are you willing to give up the South African lifestyle, for example warm weather and the many outdoor activities on offer?
- Where are your family and loved ones located?
- Is alternative citizenship or residency easily and affordably available to you? For instance, if you do not qualify for citizenship in another country by, for example, descent, what is the financial impact of the residency or citizenship programmes on offer in other countries?
Everyone’s circumstances will be different and, as shown above, there are many factors to consider. Seeking professional advice can help you make the right decisions for your situation.
Emigration
Defining emigration
The Oxford dictionary defines emigration as ‘the act of leaving one’s own country to settle permanently in another’.
Emigration has both tax and exchange control implications
If you are considering emigrating, it is important to have a holistic picture of all the South African tax (SARS) and South African exchange control (SARB) implications during your lifetime. If you have South African resident children and/or grandchildren who are residing abroad but have not formalised their emigration, it is equally important to understand the impact your death may have on their ability to receive an inheritance from your South African estate.
There are separate processes that must be followed to end South African residency status for exchange control (excon) and tax purposes
The tax and excon processes could happen in tandem or independently, although from a tax perspective it is best to consider starting both at the same time.
|
What it involves | What this means in practice |
| Excon process | To be designated an emigrant for exchange control purposes (in other words, if you want to leave South Africa to settle in another country permanently), you must follow the excon process as defined by SARB. This is also known as ‘financial emigration’. |
Transferring your retirement savings Financial emigration enables you to:
Inheritances from a South African estate If you live abroad and have not formalised your emigration with SARB, you will be regarded as a South African resident temporarily abroad for excon purposes. This means you or your beneficiaries may not directly receive an inheritance paid to you or them abroad from a South African estate. However, you or they may receive the inheritance paid to you in South Africa and you or they may, by following the stipulated process (eg obtaining a tax clearance certificate, where applicable), externalise the proceeds from an inheritance from a South African estate. You or they can do this through the individual foreign investment allowance (FIA), which is currently R10 million per calendar year, and/or through the single discretionary allowance (SDA), which is currently R1 million per calendar year. |
| Tax residency process | To become a non-resident for tax purposes you must cease to be a South African tax resident as defined in the Income Tax Act. The status of your tax residency is determined by whether you meet the ‘ordinary-residence test’ (subjective test) or the ‘physical-presence test’ (objective test) and whether you are deemed to be exclusively resident in another country.
although you are not, at any stage during the relevant tax year, ordinarily resident in South Africa. Note: If you are deemed to be an exclusive resident of another country in terms of the so-called ‘tie-breaker’ test contained in the DTAs between South Africa and the other country, you cannot be a South African tax resident by way of the ordinarily-residence or physical-presence test. |
What to do to become a non-resident for tax purposes
Capital gains tax impact
Tax clearance |
Get advice, and in most instances, you will also require a formal tax opinion
We advise clients who wish to end their residency status for South African tax purposes to obtain a formal tax opinion setting out both the South African tax implications as well as the tax implications (and timing) relevant to the country to which they intend immigrating.
Unpacking the intention and purpose of having a plan B
From our conversations with our clients we have gathered that having a plan B is mostly about knowing that at any moment you can get on a plane and go and live in another country (where you own a property) and continue living the financial lifestyle you have been become accustomed to.
It is important to ensure you have enough capital abroad to fund your lifestyle
The good news is that South African residents can externalise a significant part of their South African assets without emigrating financially. In terms of the current excon limits, individuals can externalise R1 million per calendar year (through the SDA) without needing to obtain a tax clearance, and R10 million per calendar year (through the FIA) after having obtained a tax clearance certificate. In addition, SARB is considering special applications for externalising amounts well over these limits.
