Financial emigration from South Africa is a complex yet important decision for many individuals who choose to permanently relocate abroad. While physically leaving the country may seem straightforward, the financial implications are far-reaching and often misunderstood. South Africans who intend to live abroad for the long term must understand how to formally cut their tax ties with South Africa, declare their non-resident status, and comply with cross-border regulations. Navigating financial emigration involves dealing with the South African Revenue Service (SARS), the Reserve Bank (SARB), and global tax requirements.
What Is Financial Emigration?
Financial emigration refers to the process by which a South African citizen formally changes their status with SARS from being a resident for tax purposes to a non-resident. This allows the individual to exit the South African tax net and become subject to the tax laws of their new country of residence. Contrary to popular belief, financial emigration is not about giving up South African citizenship but is instead about cutting fiscal ties with the country.
This process has gained increased importance, particularly since the change in legislation that came into effect in March 2021. SARS now requires a clear declaration of tax residency status, and individuals must prove their intention to permanently live outside South Africa before being classified as non-residents.
Why Financial Emigration Matters
There are several compelling reasons for completing financial emigration, especially for South Africans who no longer consider the country their primary place of residence. These include:
- Ceasing tax liability in South Africa on worldwide income
- Accessing retirement annuities before the age of 55 under certain conditions
- Avoiding double taxation by becoming a tax resident in another jurisdiction
- Clarifying estate planning and inheritance rules across borders
- Ensuring compliance with both local and international tax laws
Failure to formally emigrate financially can result in individuals remaining liable for taxes on global income, despite no longer living in South Africa.
Steps Involved in Financial Emigration
While the concept is straightforward, the steps required to complete financial emigration are detailed and often time-consuming. Individuals must prepare thoroughly and ensure proper documentation is submitted to the relevant authorities. The general process includes:
1. Ceasing Tax Residency with SARS
The first and most critical step is to notify SARS of your intention to cease being a tax resident. This is done by submitting a tax residency cessation form and supporting documents such as proof of permanent residence abroad, foreign employment contracts, or visas. SARS will evaluate the application using criteria like physical presence, intention, and where vital interests lie.
2. Exit Tax Calculation
Upon ceasing tax residency, individuals may become liable for exit tax, which is a capital gains tax on worldwide assets (excluding South African fixed property). This tax is triggered as if the individual has disposed of all their assets at market value the day before leaving. Proper valuation of assets and documentation is crucial at this stage.
3. Tax Clearance Certificate
A tax clearance certificate is often needed to prove to financial institutions that the individual is in good standing with SARS. This step may involve settling outstanding taxes, penalties, or disputes before emigration is finalized.
4. Declaration to SARB
While the South African Reserve Bank no longer manages formal emigration status as it did before March 2021, it still oversees cross-border financial regulations. Individuals must ensure that they comply with exchange control regulations, particularly if they are transferring funds out of the country.
Accessing Retirement Funds After Emigration
One of the significant advantages of financial emigration is the ability to access retirement annuity funds before the standard retirement age. According to revised laws, individuals who have permanently left South Africa and maintained non-resident tax status for at least three consecutive years may withdraw these funds.
It is essential to provide SARS with proof of tax non-residency and meet all legal requirements before applying to your fund provider. Keep in mind that withdrawals are still subject to South African tax on lump sums, though the individual may be exempt under a double tax agreement depending on the new country of residence.
Financial Emigration vs. Physical Emigration
Many people mistakenly believe that leaving South Africa permanently automatically results in financial emigration. However, physical departure is not the same as formally cutting fiscal ties. SARS continues to tax individuals who do not declare a change in tax residency, even if they live overseas for years.
Financial emigration must be formally declared, and all the associated obligations such as tax clearance and exit tax must be addressed. This distinction is critical for avoiding legal complications and ensuring that your tax affairs are correctly aligned with your actual residence status.
Common Mistakes in Financial Emigration
Due to the technical nature of the process, many South Africans make errors that delay or complicate financial emigration. Some of the most common mistakes include:
- Failing to properly notify SARS of the intention to cease tax residency
- Misunderstanding the three-year non-residency requirement for accessing retirement funds
- Overlooking exit tax calculations on foreign investments and trusts
- Not obtaining professional tax advice before initiating the process
- Assuming that simply moving abroad ends tax obligations
Avoiding these pitfalls often requires the help of qualified tax practitioners, especially for individuals with complex financial portfolios or multiple sources of international income.
Tax Residency Tests Used by SARS
To determine whether someone qualifies as a non-resident, SARS applies two main tests:
1. The Ordinary Residence Test
This test considers where a person’s true home and intention to reside lies. Factors include property ownership, family location, social ties, and long-term plans. If South Africa is deemed your permanent home, you may still be taxed there.
2. The Physical Presence Test
If an individual spends more than 91 days in South Africa during the current year and over 915 days across the previous five years, they may be classified as tax residents. Exceeding this limit even unintentionally could re-establish tax obligations in the country.
Double Tax Agreements and International Compliance
Many countries have double tax agreements (DTAs) with South Africa that allow for relief from being taxed twice on the same income. These treaties become particularly important after financial emigration, especially for individuals earning pensions, dividends, or rental income from South Africa.
Understanding how DTAs apply can protect you from overpaying tax and ensure correct filings in both countries. However, failing to complete financial emigration can disqualify you from claiming DTA benefits, since SARS may still consider you a South African tax resident.
Financial emigration is a vital process for South Africans who plan to build their lives permanently abroad. It not only defines one’s tax obligations but also enables access to retirement savings and helps avoid unnecessary double taxation. As cross-border regulations continue to evolve, staying compliant with SARS and understanding your financial responsibilities is more important than ever. With proper planning, documentation, and professional advice, financial emigration can be managed smoothly, ensuring that your financial future aligns with your new global lifestyle.