Investec’s message for South Africans who want to leave the country

Investec warned South Africans planning to emigrate that leaving the country involves more than relocating, with tax, exchange control, banking, and financial planning consequences that should be addressed before departure.

This was explained by Investec’s head of tax and fiduciary, Lizzie Fick, and cross-border tax and fiduciary adviser, Tanya van Schalkwyk.

As the world becomes more mobile, an increasing number of people are moving overseas more easily and frequently.

“These days, it’s easy to pack your bags and move abroad. A new culture, new food and a new way of life await,” they said.

“There’s another side to it, though, that we see a lot as tax practitioners. We are often the bearers of bad news and have developed an uncanny knack for ruining an otherwise exciting day.”

They said they are often phoned by clients excited to start their new life abroad, but when they explain the tax consequences of moving abroad, they are usually met with stunned silence.

“Unfortunately, this is a scene that plays out all too often. Moving abroad is not simply a case of packing your bags and leaving,” they said.

“There are tax, regulatory and practical consequences you need to consider.”

Emigration is a formal process, and Fick and van Schalkwyk cautioned that the particularly difficult part of making the move is ending the relationship with SARS.

The process can be simplified into three parts: moving your life, tax, and banking and exchange control.

The “moving your life” aspect entails the practical process of relocating one’s everyday life to a new country, Fick and Van Schalkwyk explained.

“This means finding somewhere to live, securing employment, getting the right visa or residency, and physically moving your assets,” they said.

“This is the most important step. These days, where you live and where you pay tax are usually connected. Where you spend your time is where your tax residency will most likely be.”

The tax and exchange control position changes when someone relocates abroad, which makes it important to plan before leaving.

This includes understanding the tax and liquidity implications of ceasing South African tax residency and ensuring sufficient offshore funds are available once SARS and SARB requirements are met.

“Too often, people focus on the excitement of the move and only think about the tax planning afterwards. By then, it may be too late to structure things efficiently,” they said.

Tax implications

The second part of emigrating involves the tax consequences. Leaving South Africa and ceasing to be tax resident triggers what is known as an “exit tax”, Fick and van Schalkwyk said.

“When you cease South African tax residency, SARS deems you to have disposed of certain of your worldwide assets at market value on the date prior to ceasing your tax residency,” they said.

“If those assets are standing at a gain, capital gains tax may arise. The deemed disposal excludes certain assets. The most common example is South African immovable property.”

The key is to understand the potential exit tax before leaving and to ensure there is sufficient liquidity to settle any liabilities on time. Failure to do so could result in penalties and interest, they warned.

“Practically, you only formally notify SARS once you have left South Africa and moved your life abroad,” they said.

“Notifying SARS entails following the SARS process on eFiling and submitting the required supporting documents.”

“Once SARS is satisfied, it will issue a letter confirming your non-resident status.”

“This confirmation is important, not only from a tax perspective, but also from a banking and exchange control perspective.”

Banking and exchange control

Fick and Van Schalkwyk explained that the next step, which involves banking and exchange control, is critical, but often forgotten.

Once someone ceases to be a resident, they must ensure their financial institutions reflect their correct status in their systems.

“You don’t want your bank or investment provider to report you as a tax resident when you are not. Incorrect reporting can create unnecessary complications,” they said.

Once SARS confirms non-residency, the taxpayer should provide the confirmation to their bank and investment providers so their accounts can be updated.

In the year of emigration, they have an R2 million travel allowance, which is forfeited if unused, Fick and Van Schalkwyk cautioned.

Remitting income generally does not require an Application for International Transfer (AIT), although exceptions include directors’ fees and rental income.

Externalising capital requires an AIT. Amounts below R10 million can generally be approved by a bank as an authorised dealer.

Amounts above R10 million require both an AIT and South African Reserve Bank approval, which can take four to six weeks or longer.

“This is why planning matters so much. If you leave unprepared, your assets could be stuck in South Africa while you wait for approvals. Depending on complexity, this can take six weeks to six months, or longer,” they said.

Fick and Van Schalkwyk added that while emigrating can be an exciting new beginning, South Africans should not forget that it is also a tax event, an exchange control event and a financial planning event.

“With proper planning, you can manage the process smoothly and efficiently. Without it, what should be an exciting new chapter can quickly become expensive, stressful and administratively painful,” they said.

“Once you’ve moved your life, dealt with the tax and updated your banking status, you can settle in and enjoy life abroad.”