Tax when you emigrate, work outside SA: Tips, traps, expert advice

If you are planning on leaving South Africa or have already left, there are key financial factors to consider to minimise tax liabilities. William Louw, South African tax director at emigration specialist Sable International, speaks to BizNews about how to navigate South Africa’s tricky tax system. – Jackie Cameron

William Louw on the scenarios he is currently seeing:

One of the common things I’m seeing is that a lot of South Africans have left without telling SARS of their changing tax status and that can have a ripple effect. We’re also seeing far more people are planning the tax exit, which then means they can plan which taxes are due when and make sure they’ve got the cash flow for it. There are also quite a few South Africans returning, who need to then decide what they’re going to do and how to value their assets coming back into the South African tax net.

On issues that arise with tax liabilities when working abroad:

What you need to understand is that while you’re a South African tax resident, you pay taxes on your worldwide income. You are liable for capital gains tax on your worldwide assets. As a non-tax resident in South Africa, you’re only liable for taxes on your South African sourced income and your South African sourced assets. There’s a double shift there – one being the income streams and the other being the capital assets that are subject to tax in South Africa.

Because SARS loses taxing rights on your assets at a time of changing your tax status, SARS deems you to sell your worldwide assets from your local self to your foreign self, triggering the capital gains before you leave the South African tax net. That’s usually the biggest risk for people who don’t plan correctly.

There are some assets that are specifically excluded because they’re still deemed to be a South African source or don’t trigger a tax event. South African property, because it cannot leave South Africa, is always subject to South African tax. As such, it doesn’t trigger any tax when you change your tax status. When you sell it at the end, you will then pay your taxes at that point.

On moving offshore:

You need to get tax advice from both countries to make sure you understand what happens when you come into the tax jurisdiction and what happens when you leave the tax jurisdictions. One of the key factors there is that South African capital gains tax works slightly different to a lot of other countries. In other countries, often, it’s a flat rate that you pay depending [on] what the capital gain is. However, in South Africa, what happens is that a portion of the capital gain gets added to your normal taxable income in that tax year.

If you plan incorrectly and you leave towards the end of the South African tax year, you will then be adding your capital gains tax on top of all the income you’ve earned for the full year – which could be 11 months worth of salary. Then you’re paying a higher tax rate because in South Africa, you move up through the tables from 18% up to a maximum of 45%. If you leave at the beginning of a South African tax year, you usually have very little South African income, which means when you add the capital gains tax into that, you find that the tax is far more palatable and easier to manage, meaning you don’t have as much of a cash flow issue.

You also need to be aware that if you do have to pay tax on changing your tax status, often that tax is due before you actually change your tax status – which is a tax burden that you need to plan for and have ready to pay immediately. If you don’t pay it and then you do your tax return, SARS is allowed to charge penalties on late submission and late payment of the taxes – which you don’t want.

On emigration when retired:

It can be just as complex. Another thing that has to be thrown into the mix for somebody like that is, they may have retirement annuities or similar in South Africa – which they’ve already converted into a living annuity. Once it’s in a living annuity, it always has to be paid like that going forward from South Africa. Those living annuities are controlled, largely, by a double taxation agreement – how the countries can tax it. For the UK, if you receive an annuity from a South African source, you have to exempt it from South African tax because you’re only meant to pay tax on it in the UK.

Then in South Africa, you have to apply for exemption every year with SARS and you have to do a tax return every year with SARS. It causes extra work, even though you’ve left South Africa for 10 or 15 years – you could be going on and doing it for the rest of your life. If you do have significant savings and planning like that, we do recommend you speak to a wealth team like ours so that they can plan what to do with that. One of the key things that our wealth team could assist with is trying to get your retirement annuity into a foreign currency base, so that it’s easier to control your capital base being secure rather than the volatility of the South African rand.

On complicated scenarios facing South Africans:

One of the more complicated scenarios [is] where the family unit starts shifting together. Often in South Africa, it’s difficult for a white male to get work – especially when they are older. The family don’t necessarily want to leave the country, meaning that if he goes overseas to earn income, his tax status might not have changed – even though he may spend a week or two in SA – because his family is still here.

He is sending the funds back, which causes a complication of where he’s a tax resident – and he’s likely to be a South African tax resident. If that’s the case, then he’s sitting with a potential problem. The other one that’s often a problem for South Africans is when they’re working on the boats in the Mediterranean or the Caribbean, and they’re on a private charter which isn’t rented out by the owners to third parties. Then, that income stream is exempt from South Africa and all of it gets pulled into the South African tax net. A lot of those people don’t like hearing that news.

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* This podcast is proudly brought to you by Sable International.

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