Financial emigration is currently very topical. The reason could be because of the proposed change in tax laws for South Africans working abroad from March 2020, or it could be because more countries are advertising themselves to South Africans as a country they should emigrate to, either way, it warrants further discussion.
From March 2020 South African Revenue Service (SARS) is looking to change the way they tax those who work abroad, i.e. South African expat workers. Currently, South Africans who earn income abroad are assessed in terms of residency. If a South African resident works overseas for 182 days, including a continuous period of more than 60 days, they are exempt from tax on any foreign country income. SARS are now proposing changing its tax on remuneration earned outside South Africa, to pay 45% tax on earnings above R1 million.
These changes will affect many South Africans. Fortunately in situations where South Africans who work overseas, yet remain South African citizens, South Africa has double taxation agreements (DTA’s) with a number of countries to prevent double taxation of income accruing to South African taxpayers from foreign sources.
So what is financial emigration and who will benefit from it? First off, there is a difference between emigration and financial emigration as the Department of Home Affairs and SARS view residency differently. The Department of Home Affairs views residency from a citizenship perspective and SARS from a tax perspective.
Financial emigration would involve informing the South African Reserve Bank (SARB) that you have left South Africa. This does not happen automatically, even if you have emigrated, as you still have to let the SARB know that you have permanently left South Africa. Your status will change from a permanent resident living board to a non-resident. By changing your residence status from permanent resident living aboard to a non-resident, your citizenship status will not be affected. You can emigrate financially from South Africa and still be a citizen of South Africa.
Who should consider formal emigration?
- A person or family who has been living abroad for the past 15 years,
- they have acquired citizenship abroad,
- they have no intention to return to South Africa,
- they have no more assets in South Africa and
- are expecting to inherit more than R 10 million from their SA based family.
Financial emigration, whilst suitable to some, must still be considered carefully as it can trigger a capital gain liability and impose restrictions on assets remaining in South Africa, bank accounts and access to credit. Ideally the advice of a financial immigration specialist should be sought.
Currently as a South African, we have an annual R1 million discretionary allowance and R10 million foreign investment allowance, which requires SARS tax clearance. Both of these can be used for foreign investment and asset transfer without having to financially emigrate.
It is clear that financial emigration is not for everyone. It is not for those who plan to work overseas temporary but for those who have chosen to move abroad and work there permanently.
Sigrid Madonko
Certified Financial Planner ®
Professional Director at Quintus Wealth
info@quintuswealth.co.za