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Tax free salary does not equate to tax non-resident

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South Africans living in the UAE (Dubai) or Quatar (Doha) not paying South African tax on their foreign earned salary,  in most cases will remain tax resident in SA.

The 183/+60-day rule only speaks to the (partial) exemption of remuneration from employment. South Africans will continue to pay SA tax on worldwide income from all other income, including most retirement fund income albeit that the retirement fund is foreign based.  Immigrant South African may enjoy some limited tax exemption on foreign pension, yet the SA retirement funds will indeed pay SA taxable retirement benefits, albeit that contirbutions were made from tax exempt foreign employment income.

Because of the 2020 tax year changes, allowing SA taxpayers residing and working in say UAE, Germany, USA and most other countires, will no longer enjoy full tax exemption on all their foreign sourced salary. In fact, as of 1 March 2019, the taxpayer’s tax exemption will be capped at R1m per tax year. This aligns the SA system with that of the USA.

Many expats now rush to tax emigrate from South Africa, all in an attempt to save the SA tax on the foreign income. in doing so the taxpayers may indeed trigger capital gains taxes on the tax exit placed on record, so late in the relocation process.

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26 July 2018

FATCA in Afrikaans? BRS:AEOI? Is this Marmite on Toast you ask?

BRS: AEOImeans Business Requirement Specification: Automatic Exchange of Information

There is so many new tax acronyms, one can’t be blamed for not always knowing  the full phrase behind the tax acronym.

To guide you, we add a few new once, all from an SA perspective yet they are all well-known international acronyms or abbreviations.

Here they are, but it is not an exhaustive list:

  1. AEOI – Automatic Exchange of Information aka AEFAI as per SARS press release on BRS
  2. AEFAI – Automatic Exchange of Financial Account Information
  3. ATO – Australian Tax Office www.ato.gov.au
  4. BRS – Business   Requirement   Specification or Direct Data Flow Channel Guide  aka SARS Modernised 3rd Party Reporting platform, used to report inter alia PAYE, VAT, Investment Income (IT3’s).
  5. CRA – Canadian Revenue Authority – http://www.cra-arc.gc.ca/menu-eng.html
  6. eFile – the South African online tax filing portal www.sarsefiling.co.za
  7. Excon – Exchange Control aka FinSurv- SA monetary laws administered by SARB
  8. FATCA – Foreign Account Tax Compliance Act – FFI and other tax offices dotted over the word reports on you to the IRS. An USA Act see http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA
  9. FBAR – Report on Foreign Bank Account reporting – you tell IRS
  10. FFI – foreign (non-USA) financial institutions – FATCA terminology compare with USFI or FI that is USA based
  11. FinSurv – Financial Surveillance, previously known as Control or SARB’s Exchange Control watchdog
  12. HMRC – Her Majesty’s Revenue & Customs – UK tax office http://www.hmrc.gov.uk/
  13. IGA – Model 1 and Model 2 intergovernmental agreements (IGA) or FATCA agreement between IRS and SA on the AEOI process using the BRS designed and implemented in the various IGA jurisdictions
  14. IRD – Inland Revenue – New Zealand aka Maori as Te Tari Taake
  15. IRS – Inland Revenue Services in the USA www.irs.gov
  16. MTP (SA) – Master Tax Practitioner in SA – the Who’s Who in SA tax environment 
  17. PR – Tax practitioner registered with SARS
  18. SARB – South African Reserve Bank, equivalent to the Central Bank in international terms www.resbank.co.za
  19. SARS – South African Revenue Service – www.sars.gov.za
  20. TAA – Tax Administration Act – South African Act dealing with C:SARS rights to administer tax acts
  21. USFI – U.S. financial institutions the internal US hold Co aka as lead FI reporting for all FFI’s in the FI Group

OK, you still lost? Need some more info on all the buzz words and your compliance risk and obligation? Feel free to ask the questions:

Ex-pat Pensioners enjoy Exchange Control Freedom

On our Exchange Control Blog we posted an interesting Exchange Control update (Circular 4 of 2014) refers. See http://wp.me/P4efR1-q

In short:

Ex-pat Pensioners residing abroad (not having formally emigrated) can now extract their monthly pension and retirement annuity income from South Africa (SA) without the need of a tax clearance certificate, despite living abroad as so called temporary non-residents.

TAX ISSUES

UK resident ex-pat pensioners must take note of their NDR status and the tax consequences of remitting SA pension to the UK.

UK, USA, Australia and New Zealand ex pat pensioners may need to avail to treaty benefits to extract their pensions tax free from SA.

Should you need help complete the section below and we will be in contact.

Contact details for Hugo van Zyl

Our contact details

Office 0283122764 or Mobile 082 55 44831

Email  hugovz(at)iafrica.com

 

How can Hugo assist me in legally extracting my assets from South Africa?

13 October 2008

Formal Emigration / Excon Exit Check-list 

Hugo van Zyl, working in close corporation with other intermediaries, smaller and medium sized audit and or law firms, will gladly assist in analysing the feasibility of a formal emigration. Once the expat or emigrant to be is ready, we will assist with all formalities and the submission of the required documents at either or both SA Reserve Bank (SARB) and the South African Revenue Services (SARS).  

Formal Emigration is indeed a SARB and SARS event and there is no reason to give up your SA citizenship, in fact we encourage all South African passport holders to protect their current passport. The SARB formal emigration is however subject to clients having the necessary immigration status in their new home country. Although we provide general guidance, based on SARB or Exchange Control (Excon) guidelines however all clients will have to appoint their own immigration agent or lawyer in their chosen home country.

Tax emigration is often partly completed prior to the financial emigration from our Excon system; however clients should also ensure they have appointed a tax accountant in their new home country to ensure the transfer of asset values is correctly processed. Certain immigration jurisdictions allow immigrants to exit the SA system and gradually enter the new tax system. The most well known is probably England and it’s NDR system yet more recently New Zealand and Australia announced certain tax deferment options. Hugo has a working knowledge of these rules however specialist advice should be obtained locally in the immigrant’s new home country.

Before we can assist, we require the following information:

1.                  Initial Analysis – minimum documents required

1.1              FIC Act documentation (www.fic.gov.za); i.e.

1.1.1        SA ID document – certified

1.1.2        SA Passport – certified

1.1.3        SA utility bill reflecting residential address or acceptable alternative

1.1.4        SA Tax number and copy of last tax return filed alternatively a newly completed SARS IT77 form; and

1.2              An acceptance of our standard terms of business, based on the  SAICA proposed mandate letter – refer to our webpage;

1.3              SARS limited Power of Attorney – as per SARS web page

1.4              Tax reference number in new country

1.5              New Passport, work permit, permanent residence permit or green card (USA).

1.6              Latest balance sheet as filed with either SARS and or SA bankers. For a family unit we require a separate balance sheet per person;

1.7              Summary of pension funds, retirement annuities and life cover as separate summaries;

1.8              Short summary on the family’s background i.e. source of funds, family structure and an indication of the assets to be externalised vs. assets to be left in SA as blocked assets?

2.                  Our Initial Analysis

Based on the above check-list and any other information Hugo may require;

2.1              An initial analysis is provided to the client or the referral firm or intermediary; where after

2.2              The client must sign and confirm our analysis as true and correct as this document will be relied upon by the local advisors (bankers, insurance brokers and auditors) as well as the new advisers in the new home country.

3.                  Client Elects To Proceed / Place Application On Hold

Consider alternative or more appropriate options such as FIA (R2m per person)  or FDI where the emigrant is required to expand his SA business formally into new country but do note neither the FDI nor the FIA are emigration options!

3.1              Update the tax status of the client, his spouse and that of his children to be included on the family emigration form. We normally rely heavily on the client’s existing relationship as they will best know the answers to all questions following the

3.2              Tax clearance application; which entails the following information / decisions:

3.2.1        Market value analysis of life cover and retirement funding;

3.2.2        Name and address of local SA agent taking responsibility for the filing and payment of future taxes;

3.2.3        Updated market value balance sheets per taxpayer as well as consolidated family unit balance sheet; where after

3.3              A client meeting or telecon (using Skype) can be arranged to ensure the client has a correct understanding of the process, the implication and the cost of such an application which includes:

3.3.1        Our fees and the fees of other family advisors;

3.3.2        CGT on the sale or deemed sale of SA assets;

3.3.3        The fees to be charged by the chosen authorised dealer i.e. obtain details of chosen bankers (authorised dealer where client and or spouse have account at various different banks) where after contact should be made with the non-resident or cross border branch of the elected authorised dealer.

3.3.4        Excon Exit Levy – the rate, how it is calculated and when it is payable;

3.3.5        Cost of a failed emigration where clients return to SA within 5 years and there after.

3.4              Present at the meeting, be telecon or through file notes as the clients, their tax advisor and accountant if not same and any other advisors such as corporate trustee

4.                  The SARB Emigration Application M.P. 336(b)

The following information and documentation are to be presented to Excon through the authorised dealer:

4.1              Documentary proof of permission to live in the new country, i.e. certificate of citizenship, proof of residency etc. or new passport;

4.2              Copies of tax advice taken in the country that they are emigrating to. 5

4.3               Proof of any remaining Foreign Investment allowance available for the family.

4.4              New consolidated balance sheet of the family unit using the heading as reflected on the said MP336(b); and client to indicate

4.4.1        Assets to be transferred within the next 3-5 years;

4.4.2        Assets to be retained in SA as so called blocked assets. Each class of asset has different requirements before they are effectively placed under control of the authorised dealer.

4.5              Where there was any donations made or received within the last 3 years:

4.6              Where there is any trust obtain the following:

4.6.1        Trust deed;

4.6.2        Last 3 years annual financial statements

4.6.3        List of any capital distributions (awards or donations) from a trust in previous 3 years

4.6.4        History on the funding and formation of the trusts. The client should be made aware of the fact that there is an Excon differentiation between an inter vivos and mortis cause (or will) trust; and

4.6.5        Undertaking to ensure trust’s board of trustees are mainly or in the majority, resident in SA

4.6.6        Completed forms M.P.1330(a) and M.P.1331 iro income remittances post emigration from the trust based on last Audited financials or Pro-forma for the Financial year end. No post emigration income can flow until submitted and approved – yet no capital may leave without the 10% Excon exit levy i.e. the trusts’ annual accounts must be filed regularly post emigration

4.7              Obtain full details of Insurance policies, Living and Retirement Annuities (including history i.e. age and amounts contributed), Pension Funds ; which sahell include

4.7.1        Contact details of FSB approved broker;

4.7.2        Original policy documents which has submitted to the Authorised Dealer as so called blocked assets although annuity and pension may normally be remittable once emigration is completed;

4.8              Name and address of share dealer / stock broker / wealth manager iro of the all the family units as well as the associated trusts; and where client so wish

4.8.1        Unlisted shares retained:  Obtain share certificates, loan certificates and last 5 years annual financial statements should be filed with the Authorised dealer. Client should be made to understand borrowing limitation may now apply;

4.8.2        Listed shares: Letter of undertaking from the broker / wealth manager

4.9              List of all credit cards to be cancelled or retained as debit cards as well as all other bank accounts to be consolidated and closed in favour of the single blocked account operated by the non-resident centre / cross border branch of the chosen authorised dealer;

4.10          List of all known liabilities which includes:

4.10.1    Immediately due and payable income tax and removal costs;

4.10.2    Post emigration expenses of liabilities such as cost to maintain family’s holiday home, cell phones etc. As guideline we provide the following amounts which may be taken from blocked funds: R75 000 living allowance for periods spent in SA, R100 000 annual donations, R100 000  property maintenance, all medical expenses but note that the post emigration tax liability must be funded from post emigration income which is normally  remittable funds.

4.11          Detailed information on all fixed property, share block and time share assets:

4.11.1    Require a reasonable valuation of property at date of departure, although there is no SA CGT until the immovable property is sold;

4.11.2    Valuation used for both the M.P. 336(b) and for CGT in new country of residence;

4.11.3    Warn client on the new CGT withholding tax rules now applicable to non-resident taxpayers; and finally

4.11.4    Obtain original Title deeds or where necessary a certificate and letter of undertaking from the mortgage holder

4.12          Debtors and other amounts collectable i.e. funds held in trust by transferring attorney:

4.12.1    Need certificate of balance in required format from each debtor (including loans receivable); and

4.12.2    Letter of undertaking re payment into blocked accounts

4.13          Other assets – Timeshare, motor vehicles, furniture, personal effects etc not exported.

4.13.1    Once again valuation and Certificate of Title where applicable; together with

4.13.2    Letter of undertaking in prescribed format;

But excludes any of the following, all of which can leave without a 10^% Excon Levy up to a maximum of R1m (which is subject to review):

4.13.3    Chattels, yachts; personal effects and any other assets to be sent out on form NEP (No Export Proceeds Form); therefore

4.13.4    Separate NEP for each class of assets i.e. furniture going by ship vs. coins and jewellery being carried out as hand luggage. NEP must be pre-stamped by Authorised Dealers

4.14          Liabilities

All current and future liabilities need to be accounted for, including CGT on assets disposed of or retained but deemed as disposed, professional fees and removal / relocation costs. As these liabilities will be settled from blocked funds certificate of balance may be required / loan certificate where it is an intra-group loan to trust or private company

 

 

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