Answers to Common Questions around the TAX law, BREAKING TAX RESIDENCY and EMIGRATION TAX

Updated: Mar 11, 2020

  • When is the new Tax Law coming into play?

March 2020. The new tax law is coming into play in South Africa, March 2020 and have a lot of expats wondering where they stand.

  • Will all South Africans living abroad be affected?

No, not everyone will be affected or affected equally. Certain things will influence if you are affected or not.

For example: Looking at exactly what you are earning as foreign income. Only amounts over R1 million (this has now changed to R1.25 million after the budget speech in February 2020. Read more about it here) will be taxable in South Africa. Even then, we have a Double Tax Agreement with most countries, which means whatever tax you pay in that country, will be a tax credit in SA. Ie: if you pay 30% tax abroad and in SA our bracket is 26%, then you won’t pay extra tax in SA. If it is the other way around then you will pay tax in SA.

(There is certain income that is not exempt, like Fringe benefits. We can do an assessment for you.)

  • What is Financial Emigration?

Financial emigration, which is the South African Revenue Service (SARS) and South African Reserve Bank (SARB) formal process to have noted that you are no longer “ordinarily resident” in South Africa, remains the only formal route in law to permanently have a status change noted. This is also the formality which has been noted in the National Treasury Parliamentary response document, which ensures that the new R1m tax rule does not apply to a South African abroad.

You can also read our article here

  • What does "Breaking Tax Residency" mean?

If you are out of SA for a consecutive five years, you are seen as a non-tax resident from year 6. This means you meet the requirements of “physical presence test” in SA. But, this is not a definite. Certain things are taken into consideration by SARS, for example:

If you own Property:

Do you have any SA earnings, like rental income, interest, etc.

If you earn income in SA you will still pay tax as a non-resident tax payer.

Things to consider when trying to prove non-tax residency without having done Financial Emigration:

  • Immovable property:

In some cases, SARS argues that you intended to come back to your home country, due to the property here

  • Leaving your Pension & RA’s in SA

SARS can argue that you intended to come back on retirement and live on your pension here.

Estate duty is payable on world-wide assets if SARS rules that you were still a tax resident. Compared to, if you emigrate and pay your CGT on the SA assets you currently have, then you are exempt from paying CGT on world-wide assets in the future in SA.

If you choose to do FE (Financial Emigration), but don’t need a Tax Clearance for SARB & don’t have RA’s to withdraw, then you can apply at SARS to deregister your tax number.

A few other things:

  • "Can I have a Bank account in SA":

On Emigration, you will receive an Emigrant Call Account. This account is blocked.

The bank will manage any funds that come in and send it abroad on your request.

All funds that you plan to receive on or after Emigration, must be completed on the MP336 document, so that the bank may send the funds abroad.

  • Do I need to pay tax on Capital Gains?

You will have to declare capital gains tax on your final tax return.

Any assets other than property, will attract Capital gains tax as if you sold the asset.

When you sell your property in the future, it will attract Capital Gains Tax.

  • Will I still be liable for tax returns in SA?

If you do Financial Emigration, but leave your investments in SA, you will be a non-tax resident and only be liable for tax on your South African source-based income. You will not have to declare your world-wide income as you are not a SA tax resident.

You will therefore only need to declare your foreign income in your foreign country.

In SA you will have to submit tax returns annually which will only have your investment CGT, interest earned or rental income in the case of letting your properties in SA.

You will only pay tax on your RA when you withdraw it in the future.

If you pay tax on your SA earnings in your foreign country, it will be a tax credit in SA.

  • Will I be liable for tax on my Retirement Annuity?

The RA is taxed when withdrawn. RA has its own tax brackets.

When withdrawn on Emigration – before retirement age, the tax rates vary between 18 – 36%. The first R25,000 is tax free.

If you wait until 55 you get the first R500,000 tax free.

However, you can only withdraw one 3rd of your RA. The balance must be reinvested and can be taken as an accrual over the remainder of your life. Which will also be taxed annually on your SA income tax returns.

If you decide with this option, but still emigrate, you will still be liable for this tax in SA.

You are then seen as a Non-resident tax-payer. Any income earned in South Africa by a foreigner, is taxed in South Africa.

These are only a few of the regular questions we get from clients. If you have another one or need a personalised assessment, send us a mail, or book an appointment.

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