#Tax2020Truth on the Capped Foreign Earned Income Exemption being R1 million as of 1 March 2020

SARS now has a dedicated page dealing with:

FOREIGN EMPLOYMENT INCOME EXEMPTION

On this page there is two newly (October 2019) released documents, the one a work in progress (draft Interpreration Note 16 Issue 3) and a FAQ document named: SARS legal counsel, on 8 October 2019 issued a FAQ document,which is neither an interpretation note nor is it a binding ruling.

It fails the actual need for total certainty, yet it goes a far away to clarify some of the questions and most importantly, it removes the false news and scaremongering by those selling financial emigration as if its something of a miracle.

There is no benefit in a detailed summary, the document reads rather easy and it is more important to note what is not addressed:

  1. How to update SARS on tax emigration in a past tax year. There is sadly no reference to VDP options
  2. It does not clearly state that tax emigration based on a treaty position, is adequate. It only refers to ordinarily resident exit options.
  3. It fails to use the correct terminology being formal emigration.

Have any questions?

What is the other commentators in the market saying?

The spokesperson managing the TPC Facebook page (shall we call him Barry for argument sake?) wrote and we quote [we added the numbers as reference to our comment below the quoted text]:

“Some Q&A that might be useful to members:

What is FE ?.

Financial emigration is a formal dual process [1] of doing formal emigration via the SARB – South African reserve bank in conjunction with “declaring your emigration to SARS” and your intent to be non-resident of SA.[2]

Your assets [3] are logged with reserve bank and sars and the bank of your choice becomes your agent at which you will hold a non resident [4] account through which you may cash out RA’s , assets and move the monies abroad.

It clearly shows your intent to SARS of not being a ordinary resident. [5] Post FE you must still adhere to the residency tests as prescribed in the tax laws. [6]

What is tax migration or tax [7] immigration?

Tax migration [7] IS NOT A TAX TERM and is nowhere to be found in the SA tax laws or SARS website!! It is a term used by some service providers that basically tries to “package” becoming a non tax resident with SARS. [7] There is no specific sars form/application/guideline or interpretation note on doing this. [8] It is relying on that in the year [9] you leave sa that you declare yourself non resident with SARS , that it triggers a exit tax (CGT- capital gains tax event) and follows to a SARS audit of you in which you will then have to proof by means of DTA- double tax agreements , TRC – tax residency certificates and by any /all other indicators that you permanently [10] reside abroad (housing contracts/employment contracts/days abroad etc etc) to get sars acceptance that you are non resident [11] .

Anyone trying to sell you tax migration is merely going to be charging you consultancy fees for the above named service and do or advise you on filing said  [12] exit tax return. Which is totally normal/legal as in providing a service but its also no “silver bullet” [13]

Do i still need to submit tax returns being resident or non resident in terms of SA tax laws?

As long as you keep/maintain any financial footprint [14] in SA its advisable to continue submitting tax returns. Once you have zero further financial  [15] assets/holdings in SA you can try to de-register from SARS completely”

Hugo van Zyl CA(SA), Trust & Estates Practitioner and Master Tax Practitioner (South Africa) comments, using the number he inserted in the quote above:

  1. Financial Emigration is NO process. It is a brand name for a specific service provider, which is very close to TPG. The process is nowhere documented or referenced in any tax or banking act. The said service provider initially defined it in one way and then later changed their explanation.  The correct terminology is formal emigration which places on record formal emigration in terms of SARB rules. It is indeed subject to SARS clearance and approval yet the approval or tax emigration clearance ceritificate (as quoted by Barry on TPG pages) does not even mention tax residency status. Source: Resbank or SARB webpage and we quote the terms and process: “they are satisfied that the insured has formally emigrated and has placed their emigration on record with the Financial Surveillance Department”. It does not refer to SARS at all
  2. TPG argues or pretend to argue that all that is required is to “declaring your emigration to SARS” and your intent to be non-resident of SA (sic). Firstly, your intention from a SARS perspective, speaks to your resident status in terms of tax law. Never ever has SARS or SARB required any emigrant, to state his intent to be a non-resident of SA and to renounce his nationality. Do not be mislead, you can tax and or formally emigrate and retain your SA nationality, and in fact retain (with permission) dual or multiple nationalities. You do not need to give intent to become a non-resident SA. They probably suggested you need to declare your intent to become tax non-resident. Luckily SARS has already commented on the misleading TPG statement that intent and FE (jointly) are adequote to break tax residency. We quote SARS saying:    “A number of factors must be taken into account to make such a determination. Interpretation Note 3 (Issue 2): Resident: Definition in relation to a natural person – ordinarily resident sets out the list of factors that will be taken into account to determine whether an individual is ordinarily resident for tax purposes in South Africa.” In the FAQ on foreign employment exempt income SARS categorically states: “Acquiring approval from the South African Reserve Bank to emigrate from a financial perspective is not connected to an individual’s tax residence. Financial emigration is merely one factor that may be taken into account to determine whether or not an individual broke his or her tax residence. An individual’s tax residence is not automatically broken when he or she financially emigrates. The deciding factor remains whether or not an individual ceased to be ordinarily resident in the Republic.” Also, intent is but one test of many others as SARS repeatedly state in their publications. TPG and many of their supporters never discuss nor do they deal with the entire IN 3 on ordinary resident tests
  3. This is just not true. Your assets are not just logged with SARB. Only the SA situs assets (held in own name or indirectly as a local trust funder or local trust beneficairy) subject to Excon control as so called blocked assets are listed on form MP336(b) and then placed under control of an authorised dealer. Logging is just not adequote and SARB is not concerned about your regularised foreign assets. They do ask the value of the funds remitted out but they do not ask for current value nor do they concern themselves with the nature thereof, provided it did not create a loop and you did not make it available to another Excon resident. SARS, on the other hand, should you not have tax emigrated, insist on a global balance sheet. Should you have tax emigrated in years prior to the formal emigration tax clearance application, they are only concerned about SA situs assets and SA sourced income potential i.e. they also want you to list trust held assets and retirement funds.
  4. This is not true. It is not a non-resident account in the true sense of the word. It is a blocked or capital account. One can, for example request that listed and unlisted shares held on the capital account, be transferred in lieu of FCA, to a non-resident account. There is thus a significant process to have your SA assets transferred from a capital (aka blocked) account to a non-resident account. Only own name local SA assets are blocked, and trust held assets are placed under restriction but not blocked or held on capital account. The restrictions imposed, forces the SA trustees to transfer trust assets and or income, vested in the name of the emigrant, onto the blocked or capital account. The exact rule reads: “Where an emigrant’s remaining assets are declared on the Form MP336(b), the Authorised Dealer under whose administration the emigrant’s remaining assets are placed must notify all applicable parties of the emigrant’s status and ensure that any proceeds derived from such assets are credited to the emigrant’s capital account”
  5. This is not true. Formal Emigration does not show intent to no longer be ordinarily tax resident. The FE process only calls upon you to commit not to return and seek employment for the next 5 years. SARB rules read: “Private individuals regarded as residents by the Financial Surveillance Department who are leaving South Africa to take up permanent residence in any country outside the CMA must apply before departure to be accorded the facilities set out below”. There is no requirement in the Formal Emigration process or rule that you agree or intend not to be ordianrily resident in SA. You can indeed be a permanent resident (PR) or national of Malta (passport holder), formally emigrate and remain ordinarily resident for tax purposes. Your status as resident, as defined in terms of ITA section 1, is determined by the double tax agreement (DTA) and not by your bank status as formal emigrant or your PR status in Malta.
  6. Add to this, one has to always consider the DTA tie breaker rules and the DTA tax residency rules as well. Reading the SA Income Tax Act (ITA) ONLY, may leave you with some nasty surprises
  7. The word is migration, not immigration as in the sub-heading. It is indeed NOT tax law defined, as its writer’s brand name and used to describe not only the process but also the outcome or DTA tie breaker definition, read with the ITA section 1 defintion. Writer is quick to admit #taxmigration is not a defined term, yet Barys close associates and the source of his material is on record as stating: “Financial Emigration and formal emigration, while similar in process, are not exactly the same. Formal emigration does not include the important steps of ensuring that tax residency is indeed ceased. Therefore, Financial Emigration is a two-component process (SARS and SARB) whilst Formal Emigration is purely a South African Reserve Bank (SARB) process”. One then is tempted to beg the question: Barry, where did they found this financial emigration definition? Could you find it in the laws of SA?
  8. TPG and Barry often argues that “There is no specific sars form/application/guideline or interpretation note on doing this. [tax migration]” yet SARS tax returns ask the question (irrespective if your formal emigration status) did you cease to be a tax resident? SARS FAQ document in question and answer 20,  also explains the options and then there is the VDP option. Clearly comments by someone perhaps nto registered or trained as a tax specialist? Furthermore SARS and Treasury formally endorsed tax migration as an option, albeit through the VDP process many years later. Treasury responded to TPG’s “Comment: This proposal will lead to an accelerated breaking of SA tax residence, including people who have been out of the country for more than 5 years. Some had envisaged retirement in SA, but will now not be willing or able to do so. [Treasury’s public] Response: Noted. The formalisation of the tax residency status of South African tax residents who left the country many years ago is to be encouraged. South Africans who are no longer tax resident is welcome to return to South Africa in future and there are no barriers from a tax perspective to do so if their tax affairs are in order. 
  9. We are amazed but this comment. Clearly the working of a DTA is NOT understood. The tax emigration or exit based on a treaty is often in years subseqent to departure from SA. Departure days, intent and number of days outside SA are not DTA tie-breaker tests and this comment is irrelevant and incorrect assumption of DTA rules.
  10. Same as for 9. DTA tie breaker tests does not include the test to never come back to SA. One can indeed be tax non-resident because of a DTA tie-breaker yet remain ordinarily resident in SA. The purposes of the DTA is to assist those not able nor wishing to break the ordinarily resident indicators.
  11. No,  SARS acceptance is not the test. DTA tie-breakers are the test and if SARS disputes the outcome one can approach the other countries competant authority. Not an approach we advocate but use SARS audit to scare taxpayers away from tax exit or tax migration based on DTA, is to lie and suggest breaking ordinarily residence will never be subject to stringent SARS scrutiny.
  12. Earlier Barry or then TPG on Facebook argued their is no process or form to tax emigrate and now he refers to “said form”. So what is the position TPG? There is a “said form” or  “There is no specific sars form/application/guideline or interpretation note”.
  13. Tax has no silver bullet, we agree. Tax migration is just one solution, the cheaper, more reliable and less restrictive process.
  14. Footprint and financial assets? Really? What about immovable assets held, beneficiaries of local trusts? Footprints may intend to encapsulate all but lets be fair to the readers and list all the nigly bits that may keep you onboard SARS’ ship

Have more questions on TPG arguments you saw on Facebook?

Published by Hugo van Zyl CA(SA) TEP MTP(SA)

I am a qualified Chartered Accountant (South Africa) and a registered Master Tax Practitioner (South Africa) and Trust and Estate Practitioner. I live in Cape Town yet many clients and intermediaries are based in Sandton, Durban, Bloemfontein ad Pretoria. I, therefore, commute on a regular basis. I have been married for some 20 years, we have no children and we love to travel. We share an affinity for good company, interesting food and good value for money wines.

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