Financial emigration: What it involves

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Financial emigration is an exchange control matter that allows a South African can, with the approval of the SA Reserve Bank, to be classified as a non-resident of the country, explains Tim Powell, director of forex at Sable International.

South African residents who have been living abroad - but have not officially emigrated through the SARB - are considered SA residents for exchange control purposes.

People regarded as South African residents for exchange control purposes; who are leaving the country to take up permanent residence in any country outside South Africa, Swaziland, Lesotho and Namibia; may apply for financial emigration.

The issue of financial emigration came in the spotlight because as from March 1, 2020 South African tax residents abroad will be required to pay tax to the SA Revenue Service (SARS) of up to 45% income earned abroad if it exceeds a R1m threshold. The fringe benefits of an expat's remuneration package will also be taken into account.

"Every case requires some expert analysis of whether financial emigration is necessary or if it would put you in a more advantageous position than you currently find yourself in," comments Powell.

Fin24 reported earlier that some experts are advising expats to look at financial emigration as an option. Others caution that for some expats it might not be the best option, while yet others have mentioned the option of rather investing in a hard currencies foreign pension fund in certain circumstances.

Also, where there is a relevant tax treaty in place, an expat may be regarded as exclusively a resident in another country for tax purposes - even if he or she satisfies SA's domestic residency tests.

Powell is of the view that financial emigration does not automatically make a person non-tax resident, but it can be a contributing factor in determining the ordinary residence test.

Powell explains the process and benefits of financial emigration:

  • Complete an MP336 form;
  • Apply for an emigration tax clearance certificate through SARS;
  • Should you have no assets in SA and have been out of the country for longer than five years, you can financially emigrate with an exemption of needing to obtain a tax clearance with SARS.
  • Submit the application to SARB;
  • On approval, the proceeds of the sale of any remaining assets in SA - for instance the sale of a property or surrendering of a retirement annuity - will be deposited in an unblocked rand account from where it can be transferred overseas;
  • Financial emigration would trigger a once-off capital gains tax liability on certain assets - in SA and abroad.
  • It is possible to "backdate" the financial emigration to avoid having to pay capital gains tax on foreign assets you obtained after you left SA.
  • You can access your SA retirement annuities before the age of 55;
  • You can transfer future SA inheritance funds out of the country without being subjected to the SA resident exchange control process.
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