Every year, thousands of South Africans leave the country. In fact, more than 914 000 citizens left the country between 2015 and 2020, meaning that the number is probably significantly higher now. Many more will leave in the coming months and years, too. According to a 2022 survey, 53% of university graduates and 43% of high earners are considering moving to another country. What many might not realise is that, as they’re leaving, they’re missing out on some important paperwork.
That’s because many South Africans emigrate without first emigrating for tax purposes. Previously referred to as financial emigration, tax emigration means ending your status as a South African taxpayer. Without going through the process, you may be liable to pay tax in South Africa as well as in your new country of residence.
Before embarking on the tax emigration journey, it’s important to go in knowing that it can be a long and complex process. That said, there are steps you can take to make it a great deal simpler while also ensuring that you get maximum value out of whatever money you transfer offshore. Here’s how.
Understand why tax emigration is necessary
The first thing to understand is why tax emigration is important. After all, it’s clear that it’s not a process that a lot of people go through. In fact, data from The SA Revenue Service (Sars) shows that 40 500 people ended their tax residency, a number that’s undoubtedly significantly lower than the number of people who have actually left.
That’s likely down to people assuming that, just because they’re no longer earning in South Africa, Sars will lose interest in them. But that’s simply not the case. According to Sars’ foreign employment guidelines, South Africans working overseas are only exempted from local taxes if they earn under R1.25 million (a threshold that’s not difficult to cross with a weak Rand). After that, the Sars guidelines state that, “any remuneration received in excess of R1.25 million will be subject to normal tax in South Africa, irrespective of whether tax is paid in another country.”
Have your tax affairs in order
The tax emigration process is a lot simpler if you already have your tax affairs in order before you start. By finalising your tax affairs in South Africa, including submitting any outstanding tax returns and settling any tax liabilities, you could end up saving yourself a lot of time, money, and effort.
Don’t try and do it alone
Unless you’re well-versed in South African tax and emigration law, as well as Sars and Reserve Bank regulations, your best bet when it comes to financial emigration is to use the right experts. At the very least, you should look for experts that can help you prove your tax residency to Sars and apply for emigration clearance. Using expert help also means that your applications to both Sars and the Reserve Bank are more likely to succeed, saving you a lot of time and hassle.
Get the best rates
Another area where using the right experts can have an out-sized impact is in ensuring that you get the best rates when it comes time to move your hard-earned Rands over to a different jurisdiction. A lot of people assume that the rates they get offered by their own bank are the same as they’d get anywhere else. But that’s not necessarily true.
Many banks and traditional foreign exchange providers charge far more on “the spread” (the difference between the median exchange rate and what they offer their customers) than is necessary. While there’s nothing wrong with charging a spread (it’s where forex services make their profits), many providers aren’t transparent about how they go about charging what they do.
Some emigrants may not be aware that they’re even paying the spread, thinking that they’re only paying a standard, fixed fee. Instead, they could be paying tens of thousands of Rands more than they should for every R1 million they transfer in the form of a highly unfavourable exchange rate.
You should, instead, look for a provider that will provide you with the most competitive rates and is entirely transparent about what fees you’ll be charged. The larger the amounts you’re moving over, the more that competitiveness and transparency matters. Hidden fees can quickly add up and put a dent in the amount of money you take offshore.
If that provider happens to be the same one that helps you with proving your tax residency and with applying for emigration clearance, so much the better.
Keep and maintain records
Once you’ve successfully emigrated financially, it’s important that you don’t assume that you’re done and dusted forever. You should instead keep and maintain records of your financial emigration documentation and transactions. It’s also worth staying in contact with your chosen experts to ensure that you remain compliant with the tax and regulatory requirements in both South Africa and your new country of residence.
Ultimately, emigrating for tax purposes isn’t something you should choose to do lightly. But if you do make the decision to pursue it, then having the right expertise at your disposal not only removes a lot of stress from the process but can also help ensure that you get maximum financial value out of it.
* Scherzer CEO of FutureForex
PERSONAL FINANCE