Authors: Jonty Leon, Attorney and Financial Emigration Legal Manager and Claudia Aires
Financial Emigration Manager at Financial Emigration
 
When it comes to choosing financial emigration (FE) or a Double Taxation Agreement (DTA), expatriates must understand that there can never be a one size fits all approach. FE requires certain criteria to be met before one can undergo the process, while a DTA will only be suitable for certain individuals.
 
Unfortunately, there is a lot of misinformation circulating in the South African expatriate community, perpetuated by service providers using scare tactics and promoting that which will benefit them over what is best for expats at large. 
 
Therefore, it is cardinal that South Africans abroad, whatever their decision, should thoroughly get to know the tax law that currently affects them and will affect them more so once the tax law amendment becomes effective on 1 March 2020.
 
Advantages of Financial Emigration

• This process is arguably the simplest, cleanest and most compliant way of ceasing tax residency in South Africa. It is a formal process through the South African Revenue Service and the South African Reserve Bank.
• The main requirement is to have a permanent intention that you will not be returning to South Africa on a permanent basis.
• It ensures that your taxes are fully compliant, and that SARS decides on your tax residency status which they cannot later reverse. You can come back to South Africa and reverse this process yourself without worrying that SARS may attempt to tax you on those years you had been financially emigrated.

 
Disadvantages of Financial Emigration

• Your South African bank account changes status from a resident account to a non-resident account, also commonly known as a “blocked asset” or “capital” account. This account is fully functional except that it no longer allows for internet banking transactions. This is done for security reasons and thus makes the account one of the safest accounts to be transacting with. Although safe, expats generally rely on being able to transact online.
• You are no longer permitted to hold a credit card in South Africa or have personal loans. Thus, these will need to be settled before the FE process.
• Once the FE process is completed, expats must ensure they do not fall foul of the physical presence test, which is entrenched in South African tax law. Thus, expats must limit their time in South Africa to less than 91 days a year to ensure they do not become tax residents of South Africa once again.

 
Advantages Double Taxation Agreement

• South Africa does not have DTA’s with all countries, so this will only apply to an expat that is living/working in a country that has concluded such an agreement with South Africa.
• You do not need to undergo any formal process in South Africa, it leaves an expat with the opportunity to make decisions on a whim if the expat ensures that it still fulfils the requirements of the DTA to be a non-tax resident in South Africa.
• DTA’s are also a less permanent solution, meaning that a person working abroad can apply for it and be fully exempt from paying taxes in South Africa on their foreign income. They will also not have to reverse any formal process if they do return to South Africa.

 
Disadvantages Double Taxation Agreement

• Applying for a DTA is a yearly process, which can become an administrative nightmare.
• To prove you fit the bill in terms of a DTA, SARS often requires a tax residency certificate from the country you are paying taxes in. This may seem simple, however this is often not the case. For instance, in the UAE, obtaining such a certificate can mean taking two full days of your time to go through the process.
• Being a less permanent solution, DTA’s are also therefore a riskier solution. Nothing is final when dealing with DTA’s due to the yearly nature of the proof you need to provide. However, a way to solidify this is by obtaining a legal tax opinion confirming your non-residency in terms of the DTA.

 
What Is Best?
Each client is different, and their specific circumstances must be considered when choosing the best legal avenue to go down. Everyone will firstly need to see if they fit the requirements of the options available, and if they do, they will need to weigh up the pros and cons of each.
 
Either way, you can be protected, the new expatriate tax law does not have to be the straw that breaks the camel’s back.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za
 
For more information on Tax Consulting please visit http://www.financialemigration.co.za

 Author: Jonty Leon, Attorney and Financial Emigration Legal Manager
 
South African expatriates need not only understand the new expatriate tax law, but also act on it or face dire tax consequences.
 
The amendment to the South African Income Tax Act No. 58 of 1962 has been fully enacted and forms part of the Taxation Laws Amendment Bill of 2017. Despite this, many South African expatriates are under the incorrect impression that the law has not been legally amended and will thus not affect them.
 
The new law states that, “There shall be exempt from normal tax— any form of remuneration— to the extent to which that remuneration does not exceed one million Rand in respect of a year of assessment and is received by or accrues to any employee during any year of assessment by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer, if that employee was outside the Republic.”
 
The new law, however, will only come into effect on March 1st 2020, to afford South African Expatriates the opportunity to lobby Parliament and to allow them and their employers to get their ducks in a row.
 
Is R1m enough?
The amendment will require that South African tax residents abroad will be required to pay South African tax of up to 45% of their foreign employment income, where it exceeds the R1m threshold.
 
Whilst this may seem enough, the problem is that employment income also includes allowances and fringe benefits paid to expatriates, which cannot economically be considered as “earnings”. The reality is that house, security, flights, etc. are mostly part of expatriate packages to allow the expatriate to work in the foreign location. These eat up the R1m threshold quickly, especially considering the harsh and expensive environments into which expatriates must often operate.
 
The options
There are effectively three schools of thought for expatriates, excluding those who are adopting an “ostrich, head in sand” approach:

• There is a segment of expatriates who are starting to wrap-up their expatriate work, planning on returning to South Africa. We get an increasing number of enquiries regarding the change to legal status and strategies to be adopted to ensure that they do not compromise their previous tax- exempt status.

 

• The financial emigration route, which is the South African Revenue Service (SARS) and South African Reserve Bank (SARB) formal process to have noted that you are no longer “ordinarily resident” in South Africa, remains the only formal route in law to permanently have a status change noted. This is also the formality which has been noted in the National Treasury Parliamentary response document, which ensures that the new R1m tax rule does not apply to a South African abroad.

 

• There is a cautious grouping of expatriates who have a “wait and see” approach, supported by the Barry Pretorius Expatriate Petition Group that continues to engage with National Treasury on expatriate compliance to get additional relaxation of the rules. This group also follows the double tax agreement route, getting tax residency certificates, which are a way of also achieving a non-residency status.

 
Act now – protect yourself
The most compliant way to fully ensure that foreign income earned as a South African expatriate is protected from South African tax is to formalise one’s emigration through SARS and the South African Reserve Bank. 
 
This process is commonly known as Financial Emigration, and once undertaken by an expatriate, it cleanly cuts ties with South Africa from a tax perspective regarding foreign income. 
 
One of the important items noted in last year’s Parliamentary process, was the caveat against last minute changes. It was noted that someone who has been an expatriate for a long period and that emigrates just before the March 1st 2020 effective date, must expect that their actions will be viewed with the necessary suspicion.
 
The prudent and fiscally conservative position remains to always have your tax affairs with SARS fully up to date and legally compliant – this includes having the correct tax status noted on the SARS system. Tax strategy includes that the SARS auditor must see a history and consistency in compliance, thus meaning the taxpayer is determined as a low or no-risk taxpayer.

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook: Tax Consulting South Africa

Author: Jonty Leon, Financial Emigration Legal Specialist at Financial Emigration, a division of Tax Consulting SA
 
Emigrating from South Africa is not as simple as packing up your bags, jumping on a plane and setting up shop somewhere else. Unfortunately, there is still the issue of tax and no matter where you go, the taxman remains interested.
 
The South African Reserve Bank, SARS and even the globally agreed Common Reporting Standards (CRS) want to know your movements. Home Affairs have also climbed on this bandwagon in respect of the White Paper released last year which recommends that all South Africans abroad must report themselves correctly, for good recordkeeping and for the authorities to know their whereabouts.
 
The only way to formally place yourself on record for all these items is to undertake the financial emigration process. This means that you will be noted with SARS (which covers your personal tax status and CRS) and the SARB (which covers your bank account status) that you are no longer “ordinarily resident” in South Africa for fiscal purposes. By doing this, your status means that the South African authorities no longer have a reporting claim on your world-wide income and capital gains.
 
No escaping SARS
A worrying factor is that the many South Africans abroad seem to think they escape SARS, for the mere reason that they are living somewhere else. Whilst the circumstances and reasons for justification vary, from an attorney’s perspective, the following factors are very worrying:

• “My Tax Advisor / Accountant Does My Taxes”. When it comes to the personal tax filing status of the expatriate, upwards of 75% of cases are non-compliant. This was noted by SARS in last year’s Parliamentary debate on the 183-and-60-day-test, which will cause much hardship for various segments of our expatriate population.

 

• “How Will They Know, I Am Small Fry”.  The tax system is designed to create a net, which also catches the small fish.  The Common Reporting Standards are designed to report foreign bank accounts by South Africans. You can ask your bank nicely to not report you, but they will. This means SARS has you on record and, as the saying goes, “it is not a question of “if” but “when””.

 

• “I Have Been Audited”. Firstly, there is a general layman confusion between being audited and being verified. Perhaps some tax advisors tell taxpayers they are audited to increase their fees; but as a rule of thumb – if they have not asked for copies of all your bank statements for the past 3 years, your tax return information has only been verified. Secondly, there is no “prescription period” for auditing undisclosed information in a tax return and no prohibition against being audited again.

 

• However. the single biggest concern is a system which does not forget, regardless of when you have left South Africa. It is a criminal offense to not keep records for 5 years from the date of your tax submission, thus technically a 7-year record keeping period is required. But more telling is that revenue authorities are globally working together to share information. Coupled with compulsory reporting by all financial institutions, the foreseeable plan is that tax returns are expected to become a relic, as SARS will already have all the required information from third parties to self-populate your return and send you the bill.

 
Guilty until proven innocent
When it comes to tax compliance, you are guilty until you prove your innocence. To get around world-wide taxes as an expatriate, the classic defence is that you are not “ordinarily resident” in South Africa. This onus is discharged by undertaking the financial emigration process, which is a SARS and SARB process, whereby you are noted on record as having emigrated. From a tax legal defence strategy, two items are important:

• SARS oversees this process and issues an emigration tax clearance certificate. This means you in practice already passed the onus of proof requirements. Also, it would be against the concept of administrative justice for SARS to later perform an audit on the same facts and come to a different legal conclusion. The key here is that the financial emigration process must be done legally correct.

 

• When you are challenged by SARS on tax residency and have not done the financial emigration route, you need to be prepared to answer under cross examination as to why you have decided to not undertake the legal prescribed process. Sometimes the taxpayer notes that they have not done financial emigration as South Africa remains their real and main home, which technically means they remain an ordinary tax resident in South Africa. Relying on tax treaty exemption is one alternative here, but this becomes a rough road, especially as the taxpayer has already conceded by implication that their habitual abode is in South Africa.

 
Final Solution
Financial emigration provides a final risk management solution for expatriates to not have to declare their world-wide income and capital gains. This also provides a solution to CRS and Exchange Control restrictions.
 
For those who need convincing to do the correct thing, we suggest they equate this to insurance.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook: Tax Consulting South Africa