With recent changes in tax legislation, many South Africans have applied for financial emigration. As part of the process, they have to apply for emigration tax clearance.
Emigration is one step, but unless the expatriate also applies for financial emigration and gets a tax clearance certificate, the person will still need to pay tax. In essence, financial emigration is a formal process in which the person’s tax status changes from resident to non-resident.
It is important to understand that financial emigration does not mean the expatriate must give up their South African citizenship or sell their property in South Africa. It is a legal formality for any South African that wants to emigrate to get a tax clearance certificate and thus to complete the financial emigration process.
In the past, expatriates often left the country without submission of their tax returns. With the new legislation, expats will be required to complete the above formalities. Many South Africans financially emigrate because they will no longer have any form of South African income.
It is important to understand that emigration and financial emigration differs. A person who has emigrated is still classified as a taxpayer living abroad. In this sense, the person must still comply with the tax laws of South Africa, including the disclosure of their income in the other country. The law sees the person as a citizen living abroad. With financial emigration, the person is no longer a tax resident of South Africa and is thus no longer required to pay tax to SARS on their income abroad.
One should apply for the tax clearance certificate as part of the process. The financial emigration is done through the South African Reserve Bank. Keep in mind that becoming a non-resident also has Capital Gains Tax implications, best discussed with our attorneys. Up to the point where the person has become a non-resident in terms of tax, SARS only taxed the person on worldwide Capital Gains Tax. Once financially emigrated, the person is only liable for payment of Capital Gains Tax on their immovable property in South Africa.
What is needed?
To financially emigrate, the person must have their Reserve Bank status changed from resident to non-resident, as this is needed for exchange control reasons. They must also obtain an emigration tax clearance certificate from SARS. This certificate serves as confirmation that the person’s tax affairs are up to date and in order.
Getting an emigration tax clearance certificate can be a complex process, best handled by experienced tax practitioners. As such, we highly recommend that you contact us for further details.