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Financial emigration …

Should I stay, or should I go?
Image: Brendon Thorne/Bloomberg

Whether working abroad or still hunting for jobs overseas, the possibility of a financial emigration always hits centre stage at some point.

Tax is inherently complex, but once you start crossing borders it becomes an ever-changing calculation that can easily render void the benefits of earning a foreign income, which was possibly the reason why you chose to work abroad in the first place.

While you are between tax jurisdictions it is important to obtain guidance on the different options available to you. On one hand, you might qualify for tax exemption on your foreign earnings, but you could still face double taxation on any money over the threshold. On the other hand, you might be planning to make your move a permanent one, in which case it might be wise to start looking at financially emigrating.

What is an exemption on foreign income?

Under section 10(1)(o)(ii) of the Income Tax Act, No. 58 of 1962, expatriates received exemption on all their worldwide earnings. In 2017 National Treasury sought to repeal this exemption to limit double non-taxation, where South Africans were not taxed in their country of residence, nor in the country where they were sourcing their income. This exemption was deemed too generous by the National Treasury, particularly for South Africans working in countries with low- or no-income tax.

This repeal was opposed in Parliament by the Expatriate Tax Petition Group who were represented by Tax Consulting South Africa. These efforts resulted in Treasury only amending the law to say that foreign earnings will only be exempt up to a certain amount, given that the individual meets certain requirements. The amount has subsequently been amended to accommodate for inflation. Currently, if you are earning a foreign income that exceeds the R1.25 million threshold, you will be taxed on your worldwide earnings above that amount, subject to possible tax credits in terms of section 6quat.

Be wary of bad advice

It is a common misconception that ceasing your tax residency or applying for relief under a Double Taxation Agreement (DTA) happen naturally, but that is not the case. It is also not as simple as ticking a box on your return, either. The “onus of proof” will always rest on the taxpayer, so they must make the effort to ensure that they have followed the correct process to qualify for exemption according to their specific tax position.

Expatriates are often advised incorrectly and operate on the assumption that they do not have to submit tax returns because there is a DTA in place with the country where the income is being sourced. This is very dangerous advice and should set off alarm bells. Even though the DTA may exempt you from paying tax, there is a strict test within each DTA to be applied before an individual can be noted as a non-resident for tax purposes in South Africa only for that specific year of assessment. If this is the case, that individual will still declare their foreign earnings to SARS, but it will be exempted  under the specific DTA.

Furthermore, a DTA, after it is approved, is only valid for the year of assessment. In other words, the DTA process must be done annually to be listed as a non-tax resident, and you must still submit your annual tax returns.

Why do a financial emigration?

Financial emigration forms part of the official emigration process. By doing financial emigration it does not mean that you are no longer a South African citizen, but it does sever your financial ties with South Africa by permanently making you a non-tax resident. Once you have formally ceased your tax residency and concluded your financial emigration, then you only need to declare South African-sourced income to Sars.

The reason many expatriates consider the financial emigration route is because they do not intend to return to reside in South Africa. By concluding the financial emigration first, they avoid having to apply for relief under a DTA or apply for the foreign income exemption which is subject to the constantly changing expatriate tax law. In turn, they are only subject to taxation in the country where they are working and any South African sourced earnings.

Your unique circumstances will dictate which option is best suited for you. The only way to obtain surety about the decision to emigrate, is to consult a specialist who will be able to weigh up the pros and cons of being exposed to international taxation, then to carefully work through every option before deciding on a course.

Reinert van Rensburg, expatriate tax specialist (BCom Law & LLB).

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WHEN YOU HAVE A BROKE a** GOVERNMENT THEY WILL TAKE YOUR MONEY AND DISTRIBUTE IT TO THE NEEDY. NOW THERE ARE 5 MILLION plus MORE NEEDY PEOPLE AND 2 MILLION LESS WORKERS because OF GOVERNMENT POLICY. don’t forget they take their fair share before distribution. CAN ANYONE TELL ME ONE SOCIALIST COUNTRY THAT WORKS??????????????? If you don’t vote you get what you deserve!!!!

Very good brief. Thank you.

A common myth is that South Africa has a skills shortage. There are many unemployed engineers and doctors in South Africa.

We have also been supplemented, with qualified professionals from the rest of Africa and from internationally, especially Cuba.

I wish all emigrants the best, in their search for greener pastures. But it’s hubris for them, to believe that they are irreplaceable.

…”But it’s hubris for them, to believe that they are irreplaceable.” It’s also self delusional when you talk such unsubstantiated drivel. If the country of birth ceases to give a good damn about those that are productive and “pay the country’s bills” then surely you are missing the woods for the trees when you say leaving here amounts to vanity and that they think that the country cannot go on without them? That is not what they are thinking; they are thinking of themselves and for the sake of their respective families. Kind of what the government does when it comes to payday.

Emigrating is a old thing. Not that long ago, governments did the begging to come, or leave. Both where financial backed by taxpayers money. Most of the time, for leavers, it was a permanent one way decision. Today reasons may be different to leave. But is still a huge step and costly. The reason to leave is for many the space called future. Complete new is the scare financial tax tactics, to change minds? For that laws have to change.

I’d like to do some financial emigration from SA’s tax system while still living here.

Yes, you can flee SA. But where do you go? The world is being hijacked by a small group individuals. The better/safer countries today will not be tomorrow.

I financially emigrated and have never looked back. Will never again give a cent to the SA revenue services. Consider the Channel Islands as a possible destination if you’re looking to emigrate. Loads of jobs available and a very safe place to live.

End of comments.

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