Tax Migration

Tax residency

Tax residency is not an elective process, instead, it is natural consequence of everyone’s factual situation. As a result, it is not possible to select your tax residency but being aware of the way tax residency is determined can ensure that you prevent any unintended tax consequences. Your tax residency status determines where and how you are taxed in a country.

According to SARS –

“From 1 March 2001, South Africa moved from a source-based to a residence-based tax system for individuals. This meant that tax residents would be subject to tax on worldwide income (excluding certain exemptions or exclusions) and non-residents would be subject to tax on income from a source within South Africa”.

But who is a tax resident? The concept of a tax resident is reliant on a number of factors which we will briefly explore here.

Notably, citizenship, visa or exchange control residence is not determinative of your tax residency for South African domestic tax purposes. Being recognised as a South African tax resident is subject to two “tests” –

1. The ordinarily resident test “Ordinarily resident” is an undefined term, determined by our courts to mean simplistically where your “real home” is. In determining where your “real home” is one considers, amongst other, your intention for living in or leaving the country, and where are your family, business and social interests are.
2. The physical presence test – requires a person to be physically present in South Africa for at least 91 days every tax year, and on average 183 days each tax year over five years.

• An individual who is deemed to be exclusively a resident of another country in terms of a double tax agreement will not be regarded as a resident for South African tax purposes. In other words, while an individual may qualify as a South African tax resident under the ordinarily resident or physical presence tests, that individual will not be regarded as a resident for South African tax purposes if that person is deemed to be exclusively a resident of another country in terms of a double tax agreement between South Africa and another country (SARS).

What is tax emigration?

Tax emigration or ceasing to be a resident for South African tax purposes is when you are no longer a resident for South African tax purposes or your residency tax status changes. If you are no longer a South African tax resident it’s crucial to formalise your tax emigration with SARS.  If you don’t notify SARS of the change in your tax residency, SARS will assume that you are still a South African tax resident, which could result in assessments being raised and you being taxed on your worldwide income in South Africa.

It is important to note that, ceasing to be a South African tax resident is not without tax consequences. A so-called “exit charge” will be activated in terms of which you are deemed to have disposed of your worldwide assets (subject to certain exclusions) at market value on the day before you cease to be a South African tax resident. This event, therefore, potentially gives rise to a capital gains tax cost.

How do I go about informing SARS of the change in my tax residency status?

The cease-to-be-resident declaration process is the process of informing SARS that you are no longer a South African tax resident and it can be an administratively intensive process. But with the assistance of Kuda FX (through AJM , our tax advisory partners), we can facilitate the process on your behalf. Moreover, we can assist with the transfer of assets abroad, provided that you meet the following criteria:

• you have ceased to be a resident for tax purposes in South Africa;
• you have obtained a Tax Compliance Status (TCS) Pin Letter for Approval of International Transfers (AIT) from SARS; and
• you are tax compliant upon verification of the Tax Compliance Status Pin Letter.

In addition to facilitating your tax emigration process, we also ensure the best exchange rates through our bulk buying power. Our fees are transparent when doing your emigration application and there are no hidden costs.

What are the benefits of tax emigration?

Besides not being taxed in South Africa, you can also (subject to fund rules) access your retirement annuity funds before the age of 55, but you must be a non-resident for South African tax purposes for a minimum of three consecutive years before you are eligible for an early withdrawal (FANews).

You would also be able to move funds from your inheritance from an estate late or a will trust and acquire a death benefit on life insurance policies (excluding lump sum benefits from pension and provident preservation funds).

Should any of the abovementioned amounts exceed R10 Million, pre-approval from the South African Reserve Bank is required. Further to this, a person may use their R1 million single discretionary allowance in the year they cease to be a SA Tax resident without requiring a TCS PIN letter. This is a once-off dispensation and cannot be used in subsequent calendar years. Once you cease to be a South African tax resident you no longer have your single discretionary allowance available to you.

(Sources used and to whom we owe thanks: SARS here and here; Interpretation Note No 3; Interpretation Note No 4; FANews here and here; The Tax Faculty; Business Tech and FHBC).

As a South African resident looking to emigrate – both physically and for tax purposes – it involves a careful consideration of timing, understanding of applicable rules and regulations, and submission of forms with supporting documentation to SARS and possibly SARB. Partnering with an experienced intermediary like Kuda FX is key to making your emigration smooth and hassle-free.

If you have any queries on the information, we have set out above, please feel free to get in touch with us.

We cannot wait to help you with all your forex needs!