South Africans emigrating to greener pastures may be prevented from leaving the country - or worse - if their application for tax clearance is denied by SARS.
Recent changes to expatriate tax procedures and SARS’ dramatically improved auditing capabilities mean the exit process is more stringent than ever.
So, taxpayers must ensure they are fully compliant before embarking on it.
Local tax laws require every South African to declare and pay taxes on their worldwide income, even if they moved to another country years ago. SARS does not tax the first R1.25 million of these earning.
However, financial emigration provides a legal escape from this obligation. That said, this method should never be pursued without the guidance of a reputable expatriate tax specialist.
Above all, never try to skip the country without completing this process because SARS can use new international information sharing agreements it has with other jurisdictions to track you down anywhere you go.
Financial emigration was previously a two-step process involving both SARS and the Reserve Bank. From 1 March 2021, SARS became its sole custodian and its focus has been on ensuring emigrants cannot depart until their taxes are paid-up.
SARS has been investing heavily in technologies like AI and data analytics, as well as integration with third-party databases, like the deeds office and financial institutes. This allows them to compare taxpayer declarations with their actual sources of income, asset holdings and investments.
We’ve begun seeing more in-depth audits that highlight and question disagreements between SARS’ records and those of third parties, and demand that the taxpayer submits explanations with supporting documents as to why these exist.
In addition, SARS used to breeze over trusts. These days, it will request its assets and liabilities statements, list of shareholders and disclosure of any offshore assets it may have.
It is therefore essential that every piece of information submitted to SARS contributes to a true and accurate record of the taxpayer's position as a whole.
With SARS’ enhanced auditing and data gathering capabilities, emigrants face threats that could delay and even abort their plans for a new life.
First, anyone whose tax affairs are not in order will be exposed. It is imperative that they review their compliance in advance and resolve issues before applying for clearance.
Previously, those who were wilfully non-compliant in their tax submissions could be prosecuted. A change to law in January 2021 now allows SARS to similarly charge those who are non-compliant simply because of negligence.
A taxpayer who cannot explain each and every discrepancy in their exit audit may therefore find themselves in court. Further, if they do not respond to SARS’ request for additional information when applying for clearance, they can be charged for wilful non-compliance as well.
A rocky exit process is best avoided as it can derail relocation plans that are typically time-sensitive. Keeping an overseas employer waiting while you sort out your taxes leaves a poor first impression. A delayed departure can run up costs like temporary accommodation, storage of household assets and cancelled flights. Worst of all, prosecution resulting in a criminal record could make a once welcoming destination near impossible to set foot in.
Becoming compliant by addressing any past indiscretions and settling outstanding taxes is always preferable to seeing one's dreams disappear on the horizon. It's also the outcome favoured most by SARS.
Financial emigration remains the cleanest and only legal way to relocate abroad permanently without future tax obligations, but it’s a complex journey, even for the compliant taxpayer.
While any tax consultant can complete your annual returns for you, it's best not to take chances when emigrating. There are too many fly-by-night operators who won't stick around long enough to share your regret when you receive an unexpected SARS audit notice years from now.
Always approach an experienced advisor that specialises in expatriate tax and offers a strong legal component. In other words, they are backed by in-house tax attorneys who will represent you in court if the need arises.
Under no circumstances hide information about your income, assets or investments from your expatriate tax advisor. SARS will come across it when you make your application so, at the end of the day, you are only doing yourself a disservice.
With all your information at their disposal, your advisor will be in a better position to help you. They can offer comprehensive planning and determine the best options for your needs.
It may just be a piece of paper but a tax clearance certificate is the real ticket out of South Africa. And the only way to buy one is to be fully tax compliant.
Written by Jean du Toit, Head of Tax Technical & Reabetswe Moloi, Admitted Attorney at Tax Consulting South Africa