One of the most common processes being publicised is financial emigration. When this is applied for correctly, it does offer certainty that one has ceased tax residency in South Africa. The key issue is that the steps to achieve this are not always adhered to, which creates tax exposure for expats.
Many expats undergoing “financial emigration” are taking into consideration only the exchange control aspects, and thus are not dealing with important tax implications.
Financial emigration is a two-fold process that includes a Sars component dealing with the legal aspects of non-tax residency, and a formal emigration component that involves dealing with the Sarb aspects of exchange control.
The first step to financial emigration is a tax check or compliance check with Sars. Once this has been completed a reputable consultant will be able to advise on the best path for the process.
To cease tax residency, one must meet the requirements of South Africa's two tax residency tests and must complete a deemed disposal per section 9H of the Income Tax Act.
The deemed disposal is where you are deemed to have disposed of your worldwide assets and immediately re-acquired them, thus bringing about a capital gains tax (CGT) event, which is often referred to as an “exit tax” from South Africa.
Once the deemed disposal has been calculated and the CGT event declared, an application to acquire an Emigration Tax Clearance Certificate should be made to Sars. Acquiring this is the last step in formalising your non-residency from a tax perspective.
Thereafter, you can look towards the second part of financial emigration: exchange control.
Once concluded, the Sarb process will further confirm one’s emigrant status for exchange control purposes. For the Sarb process of financial emigration, there is no requirement that the individual sell or dispose of any assets in South Africa.
All assets can be kept as long as they are correctly declared to Sarb. You can also successfully complete the financial emigration process if you have properties that are bonded and vehicle finance.
In addition, you can keep South African bank accounts as long as they are with one banking institution. You do not have to close such bank accounts and open new blocked asset accounts with another bank.
The crux of the matter is that undergoing the correct financial emigration process will prove one's intention to permanently reside outside of South Africa which coincides with South African tax residency tests - thus the formalisation of both exchange control and tax residency statuses being noted as “non-resident”.
Claudia Apicella is the head of expatriate tax compliance at Tax Consulting SA.