With the rapid rise in opportunities presented by globalisation and with more South African viewing the world as a global village, South Africans are migrating from South Africa. While others are motivated to emigrate for various reasons which include retirement, tax havens, marriage and many more personal reasons. Such movements can create adverse financial and tax consequences on an individual, thus it is crucial for one to consider these effects before leaving the country. In order to ensure that all implications are properly considered, it is advisable to seek professional assistance, particularly when considering emigration. We briefly set out below the main tax and exchange control implications of migration and emigration.
Migration means temporarily relocating to a foreign country, usually to work or to study, without exporting your assets from your home country. This movement does not present any financial or tax challenges. By relocating on a non-permanent basis, you remain a South African resident for tax and exchange control purposes, which means you remain liable for tax in South Africa and you will be taxed on all of your worldwide income and gains by SARS. However, you will be exempted from paying income tax for actual or deemed income sourced in the country you have relocated to.
Your assets in South Africa will not be subject to Capital Gains Tax and in terms of South Africa Reserve Bank (SARB) rules, you will be able to take money offshore via an annual investment allowance of R10 million, subject to obtaining a tax clearance from SARS. Your bank account will not be designated as non-resident/blocked and your assets will not fall under the control of an SARB authorised dealer.
Emigration on the other hand means leaving SA permanently to settle in another country, taking as many of your assets with you as you wish. If you emigrate without properly notifying the South African Reserve Bank (SARB), you are viewed as a South African resident (for tax and exchange control purposes) living temporarily abroad, subject to the same tax laws and financial regulations as people living in SA. However, if you wish to leave the country permanently, financial emigration is, in most cases recommended. You must register your intentions with the SARB by submitting your application with supporting documents which include a tax clearance certificate from SARS. Once the application has been successful, the SARB will issue you proof of emigration. The following are some of the implications of emigrating:
- When you cease to be a SA resident you are treated/deemed as having disposed your assets for an amount equal to the market value of the assets on the day before you ceased to be a resident; and then bought them again for the same market value the following day. You will be seen by SARS as having sold your assets even if you did not actually sell them. This deemed disposal will trigger CGT on all your assets (including your worldwide assets) and income tax on your trading stock. For your worldwide assets, for example, direct offshore investments, it would mean that even though you did not realise them, SARS will treat these assets as being realised thus making the unrealised or fictional gain subject to CGT.
- Immovable property in SA is exempted from this deemed disposal provision. CGT will only be triggered on the actual date of sale.
- You will be allowed a Foreign Capital Allowance (FCA) of R10 million per adult per calendar year or R20 million per family unit per calendar year. Further, in the year of actual departure, a travel allowance of up to R1 million per adult and R200 000 per child under the age of 18 years is allowed. You will also be allowed to export your assets that fall within an overall insured value of R2 million.
- Any remaining assets and the subsequent cash proceeds on disposal will fall in your blocked account and will be under the control of your bank’s non-resident centre. The SA bank account holding pre-emigration assets will be designated as a blocked account (a non-resident account subject to scrutiny and tax review).
- You can however, on a separate application to SARB, request that these funds be remitted from South Africa against payment of the 10% exit charge. Note should be taken of the fact that persons who have already emigrated, but have not fully utilised the current foreign capital allowance are allowed to make additional capital transfers to the extent that the total amount remitted does not exceed the current limits.
In conclusion, it is important to note that although these consideration may seem straight forward, it is always advisable to seek professional assistance particularly when considering emigration. This is because there are serious implications involved should one fail to properly declare their assets when emigrating.