Tax Consulting South Africa, South Africa’s largest independent tax practice, returned this week from the Netherlands after hosting tax and immigration planning sessions with recently emigrated South Africans.
One thing that became clear during the presentations, is that despite the soft-landing opportunities provided in the Netherlands and other locations, there has not been enough focus given on correctly exiting South Africa, especially from a financial and taxation perspective.
Thomas Lobban, Legal Manager for Cross Border Taxation at Tax Consulting South Africa, who was part of the travelling party, said that “engaging with the South African expats revealed a lack of firm guidance and knowledge received when leaving SA, whether it be from inexperienced advisors, the government, banks or even SARS officials”.
A clear plan of action is thus required to effectively coordinate your exit out of the South African tax system, to limit unnecessary SARS compliancy issues in the future and to eliminate double taxation exposure as far as possible.
These are the options to alleviate your South African tax burden.
- Remain a tax resident but claim under the foreign income exemption (Section 10(1)(o)(ii)): This is a viable option If your employment income earned abroad is below R 1 250 000 per year, before tax and including employee benefits. However, to qualify you must be employed and you must have been abroad for more 183 full days in a 12-month period, and more than 60 days must be continuous. It is important to note that self-employed, sole proprietors and independent contractors do not qualify for this exemption.
- Cease your South African Tax residency.
There are also two options available to expatriates abroad to cease their tax residency:
2.1 Double Taxation Agreement:
Double Taxation Agreements (“DTA”) are internationally agreed legislations between South Africa and another country. The main purpose of a DTA is to ensure that the two countries are assigned specific taxing rights against taxpayers to avoid double taxation.
A DTA can be applied on an annual basis to cease tax residency per fiscal year and is the best option if an individual does not intend to reside abroad permanently. This is also country specific, meaning that if you move to another country then another DTA needs to be applied to be able to claim relief in relation to that specific country.
2.2 Financial Emigration:
This is a once-off process whereby an individual can cease their residency if they have the permanent intention to reside abroad. To cease your residency through financial emigration, you would need to break the “ordinarily resident test” and formally declare such to SARS through the formal process. You will be seen as a non-tax resident after completing this process and would therefore not be liable to pay tax on your foreign income to SARS.
A word of caution
Victoria Lancefield, General Manager for Tax Residency at Tax Consulting South Africa, says that “it is prudent to take note that none of the options listed above will occur automatically, and it is not as simple as just ‘ticking a box’ on your return”.
The onus is always on you, the taxpayer, to prove to SARS that you qualify for the above options and are applying them to change your tax status or claim any exemptions.
Cross-border taxation and effective tax planning, is however, a very complicated and technical process which is best done through professionals who are experienced in this area.
“It is vital to speak with an expert and have a clear roadmap of your visa, financial and SARS exit from South Africa”, concludes Lancefield.
The concept of a “roadmap” is of critical importance when considering your exit – beginning with the end in mind is a key aspect in ensuring your effective departure from South Africa. It is always advised to obtain a cold recommendation on your requirements and pain points from a compliance and financial strategy perspective. In some cases, this can make the difference between a soft landing or landing in the hot seat with SARS.
Submitted by Tax Consulting SA