South Africans who have emigrated or plan to permanently leave South Africa had until 28 February 2021, to effect Financial Emigration in its current form, or be faced with a more stringent process. National Treasury (“Treasury”) has laid down the new law and made it clear – the consequence otherwise is your retirement money will be locked in for three years, you are not allowed to touch it, and best apply it to your personal circumstances.
On Tuesday 13 October 2020 in Parliament, Treasury and SARS presented to the Standing Committee on Finance on a number of proposed amendments to legislation, which amongst others, would directly affect South Africans who have already moved abroad, or are planning on moving abroad.
So the above dates have come and gone, so here is the process to follow now if you want to go ahead with your Financial Emigration.
The process of financial emigration, which is the process that allows a taxpayer to formally place themselves on record as a non-resident for taxation purposes with the South African Revenue Service (SARS), recently changed and came into effect on 1 March 2021.
Jonty Leon, Legal Manager (Expatriate Tax) at Tax Consulting South Africa, says the company has seen an increased volume of inquiries regarding the benefits of financial emigration, the new process, as well as the timelines involved in financial emigration.
“The advantage of financial emigration is that it allows you to cleanly cease taxation residency of SA, ensuring your foreign income and foreign assets are ring-fenced outside of SARS’ jurisdiction. Financial emigration used to be a taxation and exchange control process, but the new process means that financial emigration has become solely a taxation process. The exchange control process created an additional set of administrative challenges with financial institutions, which is no longer the case. Under the new financial emigration regime, there are no disadvantages for those who intend to reside outside of the country permanently,” says Leon.
In-depth audits and proving non-residency for taxation purposes
As SARS will no longer be able to tax an individual on their worldwide income and assets once they have ceased tax residency of SA, the institution has ramped up its collection power to ensure the taxpayer has truly met the requirements to cease tax residency. This translates to more in-depth audits from SARS to ensure these taxpayers meet the criteria of non-residency.
“For many years, South Africans abroad have flown under the radar. Many expats are still of the opinion that they are no longer liable to pay taxation in South Africa if they have been abroad for many years. It is important to note that the process is not automatic, and the burden of proof always lies with the taxpayer. SARS now has a team dedicated to investigating and recovering taxation from South Africans abroad who have not ceased their taxation residency in South Africa,” says Leon.
Steps involved in financial emigration
The individual seeking financial emigration must be entirely up to date and compliant with SARS. This compliance extends to any South African trusts or companies that they are linked to, which must also be fully up to date and compliant.
The taxpayer must then pass two tests to determine tax residency outside of South Africa, namely the Physical Presence test and the Ordinarily Resident test.
After this, they can submit an application with full supporting documentation to SARS for an Emigration Tax Clearance Certificate. The application will include an “exit tax” that is calculated on certain worldwide assets as well as a declaration of all South African assets and liabilities. Only once this has been audited and approved by SARS can the taxpayer consider themselves a non-resident for taxation purposes.
Leon concludes by advising people to partner with a reputable tax advisory firm with experienced, admitted attorneys in their team. “Taxpayers must follow the most transparent, formal route to financially emigrate to ensure a taxpayer can overcome their burden of proof when ceasing tax residency.”
Your Bookkeeper and Accountant are not going to be the ones to lodge this application, but they are a good starting point in getting all your documentation ready for when you go see the Tax Advisory firm of your choice.
Source: FA News https://www.taxconsulting.co.za/financial-emigration-remains-the-cleanest-route-out-of-south-africa/