Financial Emigration

Do I need to “financially” emigrate, to avoid having to pay tax on my foreign employment income from March 2020?
There is a big concern amongst South African nationals working abroad ahead of the change in legislation coming into effect on 1 March 2020. Many are scrambling to their bankers to financially emigrate (emigration for purposes of exchange control) to avoid having to pay more tax to the South African Revenue Service (SARS).

Is this, however, a necessary plan of action?

The change in legislation is aimed at individual taxpayers who are still tax residents in South Africa and are working abroad temporarily.

The change in legislation will result in their foreign employment income being subject to tax in South Africa, with the exception of the first R 1 million being exempt from tax.

Currently, the foreign employment income earned by South African tax residents are fully exempt from tax in South Africa provided they meet certain requirements.

What is not always obvious, is that the amendment to the legislation coming into effect on 1 March 2020 only effects income received as a result of employment.

This amendment does not affect you if -

you are an independent contractor working abroad; or
where you earn foreign investment income; or
you are no longer a resident of South Africa for tax purposes

Many South African nationals working abroad may already be regarded as non-residents for tax purposes, even though a formal declaration was never made to SARS. South African nationals should be mindful that breaking tax residency in South Africa may result in an exit capital gains tax.

A distinction needs to be made between breaking tax residency (via SARS) and financially emigrating by placing your emigration on record from an exchange control perspective (via the South African Reserve Bank (SARB)).

• Breaking tax residency results in you being regarded as a non-resident for tax purposes;

• Financially emigrating via the SARB results in you being regarded as an immigrant, but that will not necessarily change your tax status with SARS.

Based on the above intricacies, before taking steps to formalise your financial emigration, we strongly suggest consulting a member of our tax team to obtain professional advice in the determination of your tax status as well as a review of past disclosures.

Sharon Machutchon

Tax Consultant for Mazars