Tax Residency RSA

I think most people who are in the market to emigrate or even invest offshore are aware by now that this has moved from being a SARB (South African Reserve Bank) function to SARS (South African Revenue Service) function. SARS has now rolled out some more details, frankly only increasing the frustration for would-be emigrants. An unsurprising statistic shows that at least 51% of Taxpayers have at least considered emigration.

While this post will go into the weeds on some of the new regulations, the takeaway is to make sure your emigration has been fully planned and thought out. The objective of this post is not to have a whinge-fest about the new regulations nor revel in the “I told you so” mentality that has been the response to this sudden raising of the bar. I would encourage anyone wanting to emigrate to actually reduce their proposed journey to a written report with action steps and the supporting documentation you need to achieve this. It is very likely that you are going to need expert help, and unless you have a highly experienced financial advisor who is already looking after your wealth portfolio and can help you put that plan together, you are going to have to pay for that expertise or spend considerable time upskilling yourself.

As always advice is key. You need a tax practitioner who can not only help you navigate this increasingly onerous process, but you are going to need someone who is experienced with emigration, and the tax laws of your new destination. Deciding to emigrate is a highly emotional decision, and that decision should be made for the right reasons, and not as a knee-jerk reaction to an event or irritation at the ineptitude of the ruling party. You need a devil’s advocate to force you to look at alternatives and slow you down. If you take a measured, planned approach to emigration, you will have a better chance of having a smooth transition without destroying your wealth.

There is no getting around the fact that you are going to have to do your homework. Some of this can of course be done on the Internet, but if you have never even visited the location, then I always recommend that this be step one. There is the obvious homework like understanding visa regulations etc, but there are other less obvious areas you need to clarify. A good place to start is to draw up your full family income statement, aka Budget, and do the same for your new home and new lifestyle with differing costs. If you are taking up a new job – use this budget to gauge just how better/worse off you’re actually going to be. If you move to a non-English speaking country, then the sooner you start learning the language the better – this takes much longer than you think.

If you’ve done all your homework, and decided that emigration is the route you’re going to take, the next step is to understand the changes in Tax residency status from Resident to Non-Resident. If you want to cut all ties with SA Inc, especially with SARS, you are going to have to become a Tax Non-Resident.
Tax (SARS) and Exchange controls (SARB) have always been intimately linked, as anyone who has wanted to expatriate more than R1m pa knows all too well. If you’re a Tax Resident, you can transfer that R1m abroad without pre-approval, and you only need approval when the amount goes over R1m. However, if you are a Tax Non-Resident you are going to have to get pre-approval for every last cent that you want to transfer. (This is going to have some implications for Life and Living Annuitants – this is still being resolved).

If you want to transfer funds abroad, (for Tax Residents over R1m pa, and Tax non-residents (for everything)) you are going to need a Tax Compliance Status (or “TCS”) PIN from SARS. One of the changes that we have seen recently is that SARS used to issue two types of TCSs: an Emigration and Foreign Investment Allowance PIN. These have now effectively been merged into one and is called an AIT (Approval for International Transfer). Don’t be fooled that this is a simplification of the process. The documentation is a nightmare, and I cannot emphasise more strongly – Get the help of a Tax practitioner who has experience in this process. A misstep or omission of an asset could cost you dearly.

Let’s get into the weeds for a bit… The first hurdle for an emigrating taxpayer is to get a “Notice of Non-Resident Tax status” confirming that you are in fact a Tax non-resident. These are some of the things you are going to have to provide:

• The type of visa on which you have gone to the foreign country.
• Proof of permanent residence in the foreign country (if applicable).
• A certificate of tax residence from the foreign revenue authority or a letter from the authority that indicates that you are regarded as a tax resident in that country (if available).
• Details of any property that you may still have available in South Africa. Indicate the purpose for which such property is being used.
• Details of any business interest (e.g. investment and employment) that you may still have in South Africa.
• Details of your family. Indicate whether any family members are in South Africa and the reasons therefore.
• Details of your social interests (e.g. gym contract, recreational clubs and societies) and location of your personal belongings.
• Details of any return visits to South Africa, their frequency, and the reason for undertaking such visits.

An individual, who is resident by virtue of the physical presence test, ceases to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days. The individual will be deemed to have ceased to be a resident from the day such person left South Africa. An individual who has become a tax resident of another country through the application of a double tax agreement will also cease to be a resident for tax purposes in South Africa.

The next hurdle (and a new requirement) is that you’re going to have to declare your local AND offshore Assets, Trust Beneficiary Status, shareholdings in any companies and any loans to Trusts. (Using a Loan account is an age-old way to place funds in a Trust, usually with no interest applied – this process has already been eroded by various iterations of legislation precipitated by the Davis Report). Just a heads up for anyone who has been sold a Trust or Trust-like structure offshore (Mauritius has been the flavour of the month recently) – get your tax practitioner to make sure you are compliant with new regulations, and that funds have been correctly entered into and recorded in the Trust. These products are often miss-sold using ‘sins of omission’ (i.e. what they don’t tell you/skipping over the small print). This global asset disclosure is a new requirement, you only had to disclose local assets etc before. These assets have to be valued at cost, and current market value and the origin of those funds have to be listed – and SARS may investigate these and invariably will request appropriate supporting documentation.

SARS has become much more demanding in these requirements because of the rampant corruption and offshoring of funds which led to the Greylisting of SA Inc recently. While we all expected some changes – these are onerous, draconian and time-consuming.

If you want more detail you can download THIS report. On Page 75 of this document, you will get the eyewatering detail of the proof that has to be submitted to SARS.

One potential expense you might not have planned for is Capital Gains Tax. When you become a tax non-resident, then a deemed disposal for capital gains tax purposes takes place at the time when an individual breaks his or her tax residence. The individual will be deemed to have disposed of his or her worldwide assets, excluding immovable property situated in South Africa. From all of this, you can see, that if done in haste and without a clear understanding of the tax that is going to have to be paid, you will get hurt. Let’s get to some of the places you can start your homework : HERE is a good place to start.

Being thoroughly disenchanted with SA INC, the endless load-shedding combined with rampant corruption and wasteful expenditure of your taxes it is perfectly understandable to want to cut ties with South Africa. Before making a knee-jerk reaction, however, perhaps consider that you could have your cake and eat it. Investing offshore is a no-brainer as a Tax Resident, and you can still do this at R1m a year without the hurdles above . This adds up over time. There are companies and sectors that you can invest in offshore that are just not available here at home. The Rand is one of the most volatile currencies in the world, and much loved by day traders. The gradual depreciation of the Rand is largely due to the differential inflation rate with dips and rallies caused by sentiment. Offshore investments is a good way to hedge this.

My preference for clients is to invest offshore with an entity with no South African Company association. I might be paranoid but with the ruling party’s predilection for rummaging around in the dumpster of failed Nationalist government policies (Prescribed Assets anyone?) and other failed/failing government policies (Wealth Tax, NHS) who’s to say they may not want to resurrect the Financial Rand? A global nest egg can be the start of your Global Citizen or Non-Resident Tax status but needs to be built over time.

Today, countries with foreign exchange controls are known as “Article 14 countries”, after the provision in the International Monetary Fund’s Articles of Agreement, which allows exchange controls only for “transitional economies”. There are only 29 economies on this list. The Biggest are India and Russia, and 7 are in sub-Saharan Africa, including RSA Inc.

At Rexsolom Invest, we primarily use Switzerland (specifically Swissquote) to house and invest our client’s funds. One of the reasons for this is that they are tax-agnostic (tax is not withheld, but applied in the tax domicile), and we compile a tax pack for the investor to settle their tax affairs, in the place where they are tax residents. Time has proven that fancy tax structures, Trusts and Quasi- Trusts, and so-called tax-free locations or entities, all unravel over time.