Resident – the South African Conundrum

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The conundrum faced by most South Africans

Do not believe the articles and publications suggesting all SA Expats face a new tax charge as of 1 March 2020 (#Tax2020)

Only SA tax residents not having completed tax emigration (#taxmigration) not necessarily #FinancialEmigration, need to consider the new rules.

What must you do? Blog TAX EMIGRATE – easy as that but painful as you may face a tax exit charge (section 9H of the Income Tax Act)

If ever you are told #FinancialEmigration (FE) is the only way to ensure tax emigration to tax non-resident status, ask the tax practitioner to explain these two quotes taken from Interpretation Note 3 (Issue 2):

“…a natural person may be resident in the Republic even if that person was not physically present in the Republic during the relevant year of assessment.” Page 6 Para 3

“The concept of ordinary residence must not be confused with the terms “domicile”, “nationality”, “citizenship” and the concept of “emigrating” or “immigrating” for exchange control purposes.”  Page 7 Para 2

Need help?

Who then is a resident? If you live in a treaty country (UAE, USA, UK and all EU Countries) you are most probably ALREADY tax non resident and need not worry about #Tax2020. You also need not financially emigrate.

You do not use the #FinancialEmigration process, however should you opt to do so, for whatever reason, do remember that you will be regarded as tax non-resident, but your relationship with SARS and the tax compliance in SA, will not be brought to an end. In fact, you will remain on the SARS register and should remain tax registered (albeit paying tax on SA sourced income and assets) until there is no more remaining emigrant assets (previously “Blocked Assets”.

Read more on the SARS page HOW TO TRANSFER BLOCKED FUNDS?

SARS is very clear on the topic:

Resident

As defined in section 1 of the IT Act– Includes: Any natural person who is ordinarily resident in South Africa; or Any natural person who complies with the physical presence test; and Any person (other than a natural person) which is incorporated, established or formed in South Africa or which has its place of effective management in South Africa, but: EXCLUDES any person who is deemed to be exclusively a resident of another country for purposes of the application of any agreement entered into between the government of South Africa and that other country for the avoidance of double taxation.

What is the missing words? There is NO reference to a person having financially emigrated!

It is however true that SARS do agree on their Tax Compliance Status pages that:

          “In terms of the SARB exchange control regulations, this is when a taxpayer has formalised emigration with SARB. The taxpayer will be regarded as non-resident by SARS”

The date you became tax non-resident, will however be determined, in most cases by the treaty applicable to the country where you are now tax resident.  A list of tax treaties on DTA Pages on the SARS web pages

Expats – the questions you should be asking

Looking for the last blog? Follow this link

How foreign employment income tax will impact South African expats

Blog updated 3 February 2019

#Expats

– the questions you should be asking

Expats living outside SA must first answer the following questions before they agree to emigrate financially:

  1. Provide a family structure and background information on the immediate family, i.e.:
  2. Married, single, children?
    • Do your spouse and all your minor children reside with you in a foreign country
      • If not, provide some background information on the location and reason therefor, concerning your immediate family. Any intention for them to join you soon?
  3. Your family home in SA:
    • Did you sell or rent it out? If rented out, is it a long-term rental agreement?
  4. Do you own a holiday or house on the family farm, always available to you?
    • When you and you and the family visit South Africa, where will you reside?
https://taxmigration.com/contact/
https://taxmigration.com/contact/

And now the questions we will be asking:

  1. Will this be the same for you, travelling all by yourself on a business trip?
  2. Where do you live? Country, Province/State and City
    • Rental property or owned by the family, directly or indirectly via a family trust?
  3. Did you avail to an investor visa, e. deposited some funds with the foreign government or bought/rented a qualifying property (Malta, Golden Visa etc.?)
    • If so; how long ago and have you spent substantial time in the said property?
    • If not, explain your intention with the property or investment?
  4. Where were your born and how long did you sta in SA?
    • Provide some information on the passports ou held?
    • If not born in SA, when did you arrive in SA?
      • Wht was the reason for coming to SA?
    • What was the reason for leaving? Job, secondment or a family decision to find a new home country?
  5. Can I avail to tax treaties and be considered tax resident in my new home, as this is not subject to financial emigration?
    • If yes, on what date was the tax exit?
    • Do you pay income tax, in the new home country on sourced income only or worldwide income?
    • Have you ever obtained a tax residency certificate from the new county’s tax authority?
  6. Can I claim tax credits in SA, as I have paid the necessary tax in the country of employment?
    • Most countries, apart from the UAE, has the ability and intention to tax you on locally sourced income. Yes, even “tax havens” such as the Channel Islands do charge a personal tax on remuneration earned by employees residing in their country
  7. It could be that your employer is paying on your behalf, do ask the HR department
    • If you are not in a treaty country, can I tax emigrate based on facts and intention?
    • Could the FE option be part of the building blocks to show the intention to exit South Africa and the SARS tax system as ordinarily tax resident?
    • If so, was the tax exit date this year or sometime in the future?
  8. Why would you consider or wish the complete the FE process? Here are some reasons:
    • To cash out a retirement annuity
    • To be able to re-invest into SA via my offshore trust or non-SA company to ensure I am not exposed to SA estate duty
    • To exit large funds (more than R20m per family) sourced from past savings or huge inheritance?
  9. Why do you think do service providers place so much emphasis on FE, insisting I incur the huge costs?
    • Should I not obtain a formal tax opinion from a person not selling FE to one and all, but only to persons that could show a clear benefit?
    • Did you pay your exit tax (CGT in terms on section 9H of the SA Income Tax Act)? If so: in which tax year?
  10. Do you need to transfer funds from ZA Rand to foreign currency and vice versa?
    • Provide some additional information as to the reason, monetary value and the life events that may impact on this, e. sale of a house or parents being supported from abroad, passing on
  11. Where do you intend to retire? Back in SA?
    • Irrespective of retirement plans, do you intend to return SA at any given time?
      • Timelines and life events that catapult you into making this decision?

Once you have considered all off the above, feel free to be in contact.

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Cape Town

3 February 2019

 

#financialemigration #Saffas #Expar #Taxmigration #Wegkaner #taxemigration #formalemigration