Real Estate Investor Magazine South Africa March/April 2019 | Page 54

OFFSHORE TAX
Expat tax and financial
emigration review
T
he expat tax topic has received a lot of media coverage
of late, with some polarised views from professionals
within the same industry leading to a lot of confusion.
South Africans living abroad are concerned that they are fac-
ing an ever-growing tax liability back on their home soil. Tim
Powell, director of forex at Sable International, looks at the
cold facts of the situation.
In 2017 the National Treasury announced that the tax
exemption on South African expatriates is set to change.
The legislative amendment, which will come into effect on 1
March 2020, states that South African tax residents abroad
will be required to pay tax to South Africa of up to 45% of
their foreign employment income, where it exceeds the R1m
threshold. This is again under review with a separate workshop
set aside to deal with this issue.
Some tax practitioners and financial advisors are advising
that financial emigration is a requirement in order to change
tax residence status to non-resident and we’re not in agreement
with that view; here’s why.
What is Financial Emigration?
Persons regarded as South African Residents for Exchange
control purposes who are leaving the Republic to take up
permanent residence in any country outside the CMA may
apply to an authorised dealer for emigration facilities.
It is important to note that SA residents, who have been
living abroad but have not officially emigrated through the
Reserve Bank, are considered SA residents for exchange
control purposes.
Financial emigration is therefore an exchange control
matter whereby a South African can only on application to the
SARB financially emigrate and, on approval, become classified
as a non-resident by the South African Reserve Bank (SARB)
which incorporates the Financial Surveillance department.
This process involves:
• Completing an MP336
• Application for emigration tax clearance certificate
through SARS
• Submission to SARB
On approval, opening of blocked Rand account into
which any sale proceeds derived from any remaining assets in
South Africa for example, surrendering a Retirement annuity
or selling a property are deposited and can subsequently be
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MARCH/APRIL 2019 SA Real Estate Investor Magazine
transferred overseas.
From an Exchange Control point, there are 3 categories of
persons:
• South African Residents – living in South Africa;
• South African Residents temporarily abroad – any South
African living overseas who has not financially emigrated;
• Non-residents – this includes South Africans who have
financially emigrated.
Getting back to the expat tax topic, here are some tips from
tax practitioners we agree with;
• The intention of the tax payer and the steps they have
taken evidencing that intention are critical;
• Financial emigration is not a specific requirement under
the SARS ordinary residence test i.e. to satisfy the ‘non-tax
residence status’ of an expat living elsewhere. It is a factor
to consider in determining intent and good evidence of
having acted on that intent;
• If the ‘primary residence test’ cannot determine the tax
residency of the individual as being in SA, one needs to
consider the secondary ‘Physical Presence Test’, which is
a day count exercise.
What is concerning is the different interpretations and
opinions amongst tax practitioners and professional advisors
and the polarised views expressed where on one side we have
those promoting that Financial Emigration is a requirement,
versus those that agree that Financial Emigration is not a
requirement for becoming non-tax resident.
We agree with the camp that Financial Emigration does
not automatically make a person non-tax resident, however
it can be a contributing factor in determining the ordinary
residence test. The ordinary residence test is determined by
common law, ie. case law and there are cases that have been
reported which deals with this particular aspect in detail. The
physical presence test has been codified in legislation so it is
simple to consider it’s applicability to any particular situation.
What also needs to be borne in mind is that, where there is a
relevant tax treaty in place, you may be regarded as exclusively
resident in another country for tax purposes, even if you satisfy
SA’s domestic residency tests.