The year 2021 is now coming to an end and it was a rollercoaster ride for South Africans who are living and working abroad.
By Reinert van Rensburg, expat tax specialist at Leap Group
The year 2021 has now come to an end and it was a rollercoaster ride for South Africans who are living and working abroad. From 14-day quarantines to resolving their tax situations, it was a year of adapting and being uncertain about what could happen the very next month. The biggest topic and emigration change was certainly the process of “Financial Emigration”.
Moving into 2022 which will bring about its own challenges, it is important to settle the dust revolving around “Financial/Tax Emigration” and provide a transparent explanation of the process and reasonable costs thereof.
The old Financial Emigration to the new Tax Emigration
Before March 2021, South Africans who left the country permanently underwent the process of “Financial Emigration” to be noted as non-residents for tax and exchange control purposes. The process thus included the South African Reserve Bank (SARB) and the South African Revenue Service (SARS). From March 2021 the Financial Surveillance Department phased out the term “Emigration” and the process changed to a SARS-only process.
I like to refer to the new process as “Tax Emigration” because it only consists of ceasing your tax residency and proving that you do not fulfil the South African residency tests. Unlike the old process, SARS now has a more stringent review on an individual’s situation to ensure that they do not fulfil the residency tests to note them as non-residents for tax purposes. It is a significant status change because such an individual’s income and assets that are not from a South African source are essentially taken out of the South African tax net.
Once the process of Tax Emigration is concluded, the newly noted non-resident will receive a Tax Compliance Status Pin (TCS-Pin) for Emigration which is used as proof for third parties that the individual has formalised their tax affairs with SARS and are fully compliant. It is also used to encash necessary policies and to transfer capital abroad without the need to obtain a TCS-Pin for Foreign Investment Allowance.
Further to the Emigration Pin, the latest document that SARS also provides a non-resident is the notice of non-Residency. This document clearly indicates that the individual is a non-resident for tax purposes, and it also reflects the exact ceasing date.
Now, the cost of the process
It is no secret that the old process of Financial Emigration was not a cheap activity because of the extensive administrative burden it carried to conclude. However, the new process of Tax Emigration which is a SARS-only process carries about 60% of the administrative burden in comparison with the process prior to March 2021.
It does not seem that third-party service providers adjusted their costs to accommodate this change in the process and South Africans abroad need to consider this before embarking on the financial burden to cease their tax residency. Almost half of the administrative labour required to conclude the old process fell away, but in contrast, third-party service providers raised the cost of the process in 2021.
A reasonable cost for the change in the process from the old Financial Emigration to the new Tax Emigration to account for administrative work and legal expertise required should be 60% of what third-party service providers charged for the old Financial Emigration process.
Ceasing tax residency in 2022
South Africans that have already or are going to leave South Africa on a permanent basis need to consider ceasing their tax residency once-off through Tax Emigration, and under the same breath, if they elect to make use of a third party to cease their tax residency do proper research and avoid creating an unnecessary significant financial burden.
From 14-day quarantines to resolving their tax situations, it was a year of adapting and being uncertain about what could happen the very next month. The biggest topic and emigration change was certainly the process of “Financial Emigration”.
Moving into 2022 which will bring about its own challenges, it is important to settle the dust revolving around “Financial/Tax Emigration” and provide a transparent explanation of the process and reasonable costs thereof.
The old Financial Emigration to the new Tax Emigration
Before March 2021, South Africans who left the country permanently underwent the process of “Financial Emigration” to be noted as non-residents for tax and exchange control purposes. The process thus included the South African Reserve Bank (SARB) and the South African Revenue Service (SARS). From March 2021 the Financial Surveillance Department phased out the term “Emigration” and the process changed to a SARS-only process.
I like to refer to the new process as “Tax Emigration” because it only consists of ceasing your tax residency and proving that you do not fulfil the South African residency tests. Unlike the old process, SARS now has a more stringent review on an individual’s situation to ensure that they do not fulfil the residency tests to note them as non-residents for tax purposes. It is a significant status change because such an individual’s income and assets that are not from a South African source are essentially taken out of the South African tax net.
Once the process of Tax Emigration is concluded, the newly noted non-resident will receive a Tax Compliance Status Pin (TCS-Pin) for Emigration which is used as proof for third parties that the individual has formalised their tax affairs with SARS and are fully compliant. It is also used to encash necessary policies and to transfer capital abroad without the need to obtain a TCS-Pin for Foreign Investment Allowance.
Further to the Emigration Pin, the latest document that SARS also provides a non-resident is the notice of non-Residency. This document clearly indicates that the individual is a non-resident for tax purposes, and it also reflects the exact ceasing date.
Now, the cost of the process
It is no secret that the old process of Financial Emigration was not a cheap activity because of the extensive administrative burden it carried to conclude. However, the new process of Tax Emigration which is a SARS-only process carries about 60% of the administrative burden in comparison with the process prior to March 2021.
It does not seem that third-party service providers adjusted their costs to accommodate this change in the process and South Africans abroad need to consider this before embarking on the financial burden to cease their tax residency. Almost half of the administrative labour required to conclude the old process fell away, but in contrast, third-party service providers raised the cost of the process in 2021.
A reasonable cost for the change in the process from the old Financial Emigration to the new Tax Emigration to account for administrative work and legal expertise required should be 60% of what third-party service providers charged for the old Financial Emigration process.
Ceasing tax residency in 2022
South Africans that have already or are going to leave South Africa on a permanent basis need to consider ceasing their tax residency once-off through Tax Emigration, and under the same breath, if they elect to make use of a third party to cease their tax residency do proper research and avoid creating an unnecessary significant financial burden.