All you need to know about tax emigration if you plan on leaving SA for ‘greener pastures’

Packing for Perth may have its perks, but pay attention to the tax implications, an expert has warned. Picture: Unsplash

Packing for Perth may have its perks, but pay attention to the tax implications, an expert has warned. Picture: Unsplash

Published Jun 1, 2023

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According to the South African Revenue Service (Sars), over 40 500 taxpayers have ended their tax residency in South Africa over the past five years, as they seek out new opportunities abroad.

Interestingly, Sars data points to the fact that it is those on the lower end of the income spectrum who are making up the greater percentage of taxpayers leaving, indicating that it is young people who are venturing overseas, with the UK, Australia and Portugal being the top destinations.

Chief Financial Officer at Consult by Momentum, Riaan Verbeek, said that Sars 2021 stats show that the biggest portion of individuals changing their tax residence status was between the ages of 25 to 34 years old (32%), up from 27% in 2018, 28% in 2019 and 30% in 2020.

While Sars does not track emigration as such, the revenue service does track data on taxpayers who have changed their residence status.

“A taxpayer can still be a South African citizen while being a tax resident in another country. In fact, many tax and emigration experts will quickly point out that South Africans who emigrate and leave assets behind may still have tax obligations back home,” said Verbeek.

For those who are considering relocating permanently or working overseas and returning to South Africa at some point in the future, Verbeek said that it is important to understand your tax obligations to the country.

“Wherever you, as a South African resident decide to move to, you are required to pay tax to Sars on your worldwide income until you have formalised your non-tax residency status,” he warned.

Defining emigration

According to Verbeek, emigration is determined by the cessation of South African tax residency following a Sars verification process, effective from March 1, 2021.

“In other words, only once Sars has verified that you are no longer a tax resident will you have officially emigrated,” he said.

What is tax emigration?

As of March 1, 2021, what was formerly called ‘financial emigration’ was replaced with ‘tax emigration’, which is overseen by Sars.

“Tax emigration is the administrative act of informing Sars that you no longer meet the requirements of tax residency, and entails a change in tax status from resident to non-resident, which you will need to apply for, and receive confirmation of,” said Verbeek.

How do I apply for tax emigration?

First, you need to declare to Sars that you have ceased to be a tax resident, which will be assessed according to two tests: the ordinarily resident test and the physical presence test.

“The ordinary residence test looks at the location of your primary home, where your family is based, and where your assets are held. If all signs point to South Africa, you will be considered a South African tax resident, regardless of the number of years you’ve spent overseas,” said Verbeek.

The physical presence test considers the amount of time you spend in SA. You will be deemed a South African tax resident if you’re physically present in SA for 91 days or more during the year of assessment; 91 days or more in each of the previous five years of assessment; or 915 days or more in total during the previous five years of assessment.

“You will no longer count as a tax resident once 365 full calendar days have passed. This starts counting from the day you physically leave South Africa,” he said.

What does this mean for my retirement savings?

Verbeek said that tax emigration is now the only means by which you can access your retirement annuity funds before the age of 55, but you must maintain tax non-resident status for a minimum of three years before you are eligible for an early withdrawal.

From a tax administration point of view, the onus will be on you to notify Sars that you are no longer a tax resident and obtain a valuation from your retirement fund on the day before you cease to be a tax resident.

“In the case of a retirement annuity or a ‘restricted’ provident/pension preservation fund (i.e. one withdrawal has already taken place), you will also have to prove at the time of retirement or withdrawal that you have been a tax non-resident for an uninterrupted period of three years by providing proof of being a tax resident in another jurisdiction, for example,” said Verbeek.

If you’re planning on emigrating from South Africa and moving your family, Verbeek recommends consulting with a financial advisers, who will help ensure that the transition is as smooth as possible.

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