THE IMPLICATIONS OF FINANCIAL EMIGRATION
Financial emigration is the process whereby individuals earning mostly/only foreign income financially emigrate from South Africa for foreign exchange control and taxation purposes, without giving up their South African citizenship. By financially emigrating from South Africa and living in another country, you will not be classified as a South African tax resident with the South African Reserve Bank (SARB) and, therefore, will only be taxed on income earned within South African and not on any foreign income going forward.
The latest amendments to the Income Tax Act, which came into effect on 1 March 2020, stipulate that only R1.25 million of foreign income will be exempt from income tax in South Africa and all foreign income exceeding this amount will be taxed. However, individuals are entitled to offset tax due based on how much tax they paid in the country in which they are working, even if there isn’t a double-tax agreement with the other country.
The financial emigration process is laborious and is not necessarily a viable option for all individuals who emigrate. We highlight a few of the advantages and disadvantages of financial emigration, types of funds you can transfer as a part of financial emigration, as well an overview of the application process.
Advantages of Financial Emigration
- Individuals who have financially emigrated are able to access and transfer their retirement annuity in South Africa to an offshore account
- You are no longer subject to exchange control allowances that govern how much capital one can transfer offshore
- Money can be easily transferred out of South Africa and protected against the Rand fluctuations
- Reduction in administration of multiple bank accounts, in South Africa as well as the country you emigrate to
Disadvantages of Financial Emigration
- You will incur capital gains tax
- Potential high taxes and penalties on withdrawals on retirement annuities
- You will not be permitted to hold a credit card, or have any personal loans, in South Africa
- You would need to limit the amount of time in South Africa to less than 91 days annually
Funds You Can Transfer as Part of Financial Emigration
You can transfer the following funds offshore as part of your financial emigration:
- Inheritance from a South African source
- All passive income (i.e. salary, rent, director’s fees, dividends, income from discretionary or vesting trusts)
- Proceeds of any assets declared in the financial emigration application
- Retirement annuity, before age 55
- Proceeds from a third-party life policy
Application Process
In order to apply for financial emigration, all income tax affairs in South Africa need to be in order. This requires obtaining a tax clearance certificate from SARS.
Following a successful application and the conclusion of financial emigration, your South African bank account will be re-designated as an emigration capital account, subject to exchange control. Any remaining assets in South Africa will also be administered by the bank holding the emigration capital account.
The process from application to conclusion can take up to six months to complete and, as mentioned, the application process is complex and triggers capital gains tax and foreign exchange controls consequences. Sound guidance and advice are therefore crucial going into such an application.
How We Can Assist
We offer an expert, professional financial emigration service. Our team of professionals aim to assist expats in untangling their foreign income from South Africa. CMV offers a full administration service that takes care of the following:
- A full assessment of your financial position
- All the bureaucracy surrounding approval
- Tax clearance
- Exchange controls
We assist with the entire financial emigration process, with a customised solution, based on your specific needs.
For more information, or to request assistance, please contact us on info@cmv.co.za or 012 991 4400.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)