Government increases tax-free cap on foreign income

The concept of emigration is to be replaced by a verification process.
Image: Shutterstock

South Africans who are working and living abroad have been given some relief with a slight increase in the tax-free cap on their foreign earnings.

National Treasury introduced a R1 million limit on the tax-free amount that South African tax residents can earn abroad. This limit has now been lifted to R1.25 million. The change is effective from next month.

South Africans who have been living abroad for many years have increasingly opted to emigrate or to break their ties with the country in an effort to avoid paying more tax in SA.

Finance Minister Tito Mboweni said in his budget speech that government wants to encourage South Africans abroad to keep their ties with the country.

He also announced that it will be phasing out the “administratively burdensome” process of emigration through the South Africa Reserve Bank.

The concept of emigration is to be replaced by a verification process. Tax residency for individuals will continue to be determined by the ordinarily resident and physically present tests as set out in the Income Tax Act.

SA is one of several countries who committed to sharing taxpayer information with regards to their bank accounts and investments. In this way the South African Revenue Service (Sars) will be able to get access to information relating to South African tax residents’ income outside of the country to ensure that they pay “the appropriate level of tax”.

In the 2020 Budget Review government proposes to remove the exchange control treatment for individuals, while strengthening the tax treatment.

“The intention is to allow individuals who work abroad more flexibility, provided funds are legitimately sourced and the individual is in good standing with the South African Revenue Service.”

Individuals who transfer more than R10 million offshore will be subjected to a more stringent verification process. The focus will be on the source of the fund and the transfers will trigger a risk management test that will include certification of the individual’s tax status.

There must also be the assurance that the individual complies with anti-money laundering and countering terror financing requirements. This will be phased in by March 1, 2021.

Restrictions on emigrants – such as the restrictions on them being allowed to invest, and the requirement to only operate blocked accounts, to have bank accounts and borrow in South Africa – have been repealed.

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Do only whites emigrate? May wish to make the picture a bit more inclusive and reflective.

Effectively, YES.

In my mixed database of tax clients already emigrated, I yet have to come across a Vilakazi, or a Tshabalala, or a Dlamini, or a Mohapi, or a Ndlovu, or a Ntombela that has left SA for good.

Anecdotal perhaps, but this is not isolated. Asks others. African do emigrate however….if you search hard enough, you may find the few.

Yaa.

Maybe start by sharing the Gupta’s and the Zuma’s tax information.

Oh! Sorry. Have you not been doing that for the past decade? Wonder why?

Go and catch the real fish.

FISH!

Does it imply that the SARB’s “Financial Emigration” process will eventually fall away?

(That should perhaps worry some companies focusing only on Fin.Emigration….and staff in bank’s forex depts could be in for the chop….no more “MP336” declarations needed?)

But what about the process of cashing in one’s RA Fund prior 55-age, pending emigration?…..the SARS Emigration tax clearance (along with MP336 declaration from one’s bank) may likely still apply?

Too little info in the budget here. Will wait for more forthcoming clarity from authorities.

For SA tax residents, the R1m annual Single Discretionary Allowance (SARB) without tax clearance, would still apply unchanged, I suppose.

SARB does not have a process called “Financial Emigration”
They use the term “Formal Emigration” which (despite the BS that is involved) is defined and one can understand.

“Formal Emigration” is an undefined term created by service providers who are confused between (a) whether you are a tax resident or not and (b) whether you are a resident for exchange control purposes or not. (a) and (b) are two different concepts.

Correction:
“FINANCIAL Emigration” is an undefined term”….

@ice. Agree…”Fin.Emigration” is a loose term being thrown around by service providers (and include with that, many confusing articles from service providers on the web). SARS also use this term, piggybacking on the SARB’s “formal emigration” process as some form of guidance.

Agree, even if you’ve decide to do your “formal emigration” via the SARB, it does not automatically imply that you’re now considered a non-resident (for tax purposes) by SARS. SARS simply uses ‘formal emigration’ as one of the taxpayer’s ‘indicative steps’ taken towards becoming a tax resident of another country.

What makes me chuckle is that many articles or websites by Emigration service providers tell the reader all about this process to become a non-resident (for tax purposes), and then most stop short of going into the ugly workings of the “deemed CGT disposal of certain local & foreign assets”, also informally referred to as one’s “exit tax” 😉

So be careful what you declare to the bank (listing your assets) on that MP336 form.

I am not sure how SARS are gonna police young people that have moved on to NZ. No assets in SA, and walked out with a suitcase and a bass guitar. Cashed in the pension fund and is never coming back. Top IT software engineering student in 2013

I applaud Tito’s intention to cut red tape.
Some time ago I also applauded the announcement that the DHA would no longer require us to carry unabridged birth certificates and affidavits when travelling with minors. Problem is, when I go through passport control , we still need those documents.

End of comments.

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