There are a number of considerations when relocating to another country that involve much more than a mere physical departure and the taking up of permanent residence in a foreign country. In South Africa, an individual will continue to be regarded as a South African resident for exchange control purposes until such time as the South African Reserve Bank (the “SARB”) has provided him/her with formal emigration approval. An individual will further still be regarded as a South African tax resident until a disclosure has been made to the South African Revenue Service (“SARS”) that he/she has ceased to be a South African tax resident during the relevant year of assessment.
A number of key steps should, therefore, be undertaken from both an exchange control and tax perspective in order to ensure that the aim of initiating the emigration process is achieved.
Formal emigration for exchange control purposes
A resident, for exchange control purposes, includes any natural person who has taken up permanent residence or is domiciled in South Africa. In order to be regarded as an emigrant of South Africa, formal emigration approval must be obtained from the SARB via the authorised dealer at the individual’s commercial bank. Formal emigration does not require the giving up of citizenship, handing in of a passport or selling of immovable property in South Africa.
The formal emigration application will include a duly completed form MP336(b) together with an emigration tax clearance certificate obtained from SARS via the e-Filing system. The South African authorities will have to be furnished with, among other information, a current statement of South African assets and liabilities for the individual as well as his/her spouse who is emigrating. At the time of emigration, a foreign capital allowance of ZAR20-million per family unit or ZAR10-million per single person will be accorded in terms of the exchange control facilities available to emigrants.
The emigration process may take up to (and sometimes more than) 12 months to finalise, depending on the nature of the assets and liabilities as well as the availability of the required supporting documentation. Once the SARB has confirmed the individual’s emigrant status, all remaining South African assets will be designated as “blocked” in terms of the applicable exchange control regulations in order to be brought under the administration of the authorised dealer. Income due to emigrants is normally transferable offshore. Any transfers of capital by emigrants in excess of the ZAR10-million annual foreign capital allowance and ZAR1-million single discretionary allowance will, however, require the approval of the SARB.
Ceasing to be a South African tax resident
An individual may cease to be a South African tax resident on the basis that he/she ceases to be ordinarily resident in South Africa provided that two things can be demonstrated, namely, an intention to become ordinarily resident in another country and steps indicative of this intention having been or being carried out. Formal emigration for exchange control purposes, physically departing from South Africa, moving personal effects abroad, acquiring a permanent home abroad and living there with family, are only some of the relevant factors that may be taken into account for purposes of making this determination.
If an individual who ceased to be ordinarily resident in South Africa during the relevant year of assessment should, in addition, did not spend more than 91 days in the country in the tax year following that year this may mean that the so-called physical presence test, which could result in such person still being regarded as a tax resident of South Africa, does not apply to him/her in that subsequent tax year. An individual may also cease to be a tax resident of South Africa if such person is deemed to be an exclusive resident of another country for purposes of the application of any double taxation agreement (“DTA”) entered into between South Africa and the country of which the individual is a resident. This may be the case if, inter alia, the person has a permanent home available to him in the other country but not in South Africa.
A person who ceases to be a resident will be deemed to have disposed of all his/her worldwide capital assets (excluding, for example, South African immovable property and restricted equity instruments acquired by virtue of employment) for market value on the date immediately before the day on which that person ceases to be a South African tax resident. Market valuation statements should be obtained in respect of these assets as at that date in order to determine any resultant capital gains/losses to be included in the individual’s provisional tax payment for the applicable tax year.
The individual should also disclose to SARS that he/she ceased to be a resident of South Africa during the relevant year of assessment by answering the relevant question in his/her annual income tax return in the affirmative. As a South African tax non-resident, the individual will only be subject to tax on his/her South African sourced income and capital gains, subject to relief in terms of an applicable DTA. Tax returns should, going forward, be completed on this basis.