According to the Merriam-Webster Dictionary, “the word immigrant is used when talking about the country moved to. Emigrant is used when talking about the country moved from. Someone is an emigrant when they leave their country of origin and an immigrant when they arrive in their new country“.
Semantically, there is little difference between these words as both refer to a person who leaves one country to move to another. What is significant, however, are the formal processes involving your finances alongside making informed decisions. In this discussion, we will look at emigrating from South Africa, the implications thereof on your tax affairs, and establishing your tax residency status.
In South Africa, there are two ways in which you can be considered a tax resident. You can be:
- Ordinarily resident or
- Physically present.
Ordinary residence is not defined in the income tax act but is ‘defined’ by case law and considers your particular circumstances – where is your permanent home/place of abode, where does your family live, where do you return to after your international wanderings, where do you work. It is not based on the number of days you are in the country.
The physical presence test takes into account if you are present in SA for:
- More than 91 days (in aggregate) during the year of tax assessment AND
- More than 91 days (in aggregate) in each of the preceding five years AND
- More than 915 days (in aggregate) during those five preceding assessment years.
Suppose you meet either of the above criteria. In that case, the SA Revenue Service (SARS) will assume you are an RSA tax resident UNLESS you are considered a resident of another country exclusively in terms of a double tax agreement (DTA) between RSA and the country to which you moved.
SARS could also consider you a South African resident temporarily abroad, which can subject you to RSA tax. Often, South Africans leave South Africa (especially young adults who go and work offshore after studying) and do nothing about formally leaving, i.e., they do not emigrate. It can lead to confusion and grey areas, which is essential to avoid unless you intend to be a South African temporarily residing abroad.
Being an RSA tax resident means you are taxed on your worldwide income – if you remain a resident unintentionally, you could be subject to RSA tax on investments you start accumulating offshore. For this reason, and especially if you have no intention of returning to South Africa, you must emigrate.
Understanding whether a DTA may apply to you is also vital. Why? Because one of the functions of these agreements is to ensure that you are not subject to double tax. If you move to a place with no DTA, you could be subject to double taxation. If your tax residency status is unclear, the DTA permits the relevant authorities to determine where your residency lies. You may have heard the term ‘tie-breaker clause’ – based on specific aspects such as your property ownership, your centre of vital interests, your place of abode, your citizenship etc., the contracting states of the DTA will determine where you are a resident. We believe it would be better for you to make that determination.
Once you decide to emigrate, a process must be followed. Until 2021, the process was controlled by the South African Reserve Bank (SARB), but this function has now been allocated to SARS. It has taken SARS some time to refine the process and is now becoming more efficient. You apply to SARS to become a non-resident for tax purposes, after which you are considered to have emigrated.
We are familiar with the dealings of clients who’ve left South Africa but not emigrated, thus causing more complications than necessary on distributions from trusts, family members transferring money to offshore family, family inheriting from SA deceased estates, and not having access to their funds etc.
Although the emigration process may seem simple, we strongly recommend using expert services to emigrate financially. Dealing with SARS has its fine print, and it is better to entrust the process to someone with contacts at SARS who can deal with any challenges that may come your way. Contact PRNC for expert emigration assistance and ensure your move is smooth.