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tax ENSight | 31 Aug 2010

 

 

When considering emigration there are tax and exchange control implications that should be considered before leaving the country. In order to ensure that all implications are properly considered, it is advisable to seek professional assistance when considering emigration. We briefly set out below the main tax and exchange control implications of emigration.

south African exchange control implications when emigrating

A person, including inter alia, a natural person, whether of South African or any other nationality, is considered a resident of South Africa for exchange control purposes when he/she has taken up residence, is domiciled or is registered in South Africa. Such individuals are then subject to South African exchange controls. If a person, who is a South African resident for exchange control purposes, leaves the Republic to take up permanent residence in any other country outside of the Common Monetary Area ("CMA"), being South Africa, Namibia and the Kingdoms of Swaziland and Lesotho, he will be subject to the exchange control regulations.

An exchange control resident may remit the following funds abroad upon formal emigration from South Africa:

  • The unutilised foreign investment/capital allowance of up to R4 million per natural person over the age of 18 years, or up to R8 million for a family unit (being the once-off foreign investment/capital allowance).

  • All other assets are subject to the payment of the 10% exit charge.

On departure from South Africa, a resident is required to declare full details of the nature and value of his assets, both in and outside South Africa, as well as similar information pertaining to any liabilities which will be outstanding in South Africa after his departure, to an Authorised Dealer of the South African Reserve Bank ("SARB"). The resident must also declare whether any assets, cash or otherwise, were received as donations or gifts within the last three years, prior to the date of emigration, and furnish details thereof. The emigrant will also be required to obtain a tax clearance certificate from the South African Revenue Service ("SARS").

Once the person has emigrated, his South African assets will become blocked. He can, however, on a separate application to SARB, request that these funds be remitted from South Africa against payment of the 10% exit charge. Note should be taken of the fact that persons who have already emigrated, but have not fully utilised the current foreign capital allowance (e.g. it was less at the time of their emigration) are allowed to make additional capital transfers, to the extent that the total amount remitted does not exceed the current limits set out above.

returning to South Africa after emigration

If an emigrant wishes to return to South Africa as a permanent resident, he will have to provide documentary evidence substantiating that he has permanently resided outside of South Africa for a period in excess of 5 years, and that he is entitled to reside in South Africa again. The person will then be regarded as a new immigrant to South Africa and treated as such.

If, however, an emigrant returns to South Africa within 5 years of said emigration and takes up permanent residence, he will be deemed to be a failed emigrant. The implication of this is that it would be deemed that the person never emigrated and the 10% exit charge referred to above will probably not be refundable.

south African tax implications of emigration

A South African tax resident is taxed in South Africa on his worldwide income. An individual will be considered to be tax resident in South Africa if he is either "ordinarily resident" here, or if he qualifies in terms of the "physical presence test".

ordinary residence

The Income Tax Act No. 58 of 1962 ("the Act") does not define "ordinarily resident" and therefore the interpretation given by the courts must be followed. The courts have indicated that ordinarily resident means "living in a place with some degree of continuity, apart from occasional or temporary absence, and the place where a person's permanent place of abode was, where his belongings were stored, which he left for temporary absences and to which he regularly returned after such absences". The residence must be settled and certain, as opposed to temporary and casual. A person is therefore ordinarily resident where he normally resides.

Accordingly, determining whether a person is ordinarily resident in South Africa is a question of fact, and each case must be decided on its own facts and circumstances. SARS issued Interpretation Note No. 3 dated 04 February 2002 ("Interpretation Note 3"), which is a useful guide in this regard. In terms of Interpretation Note 3, the following two requirements need to be present for an individual to be considered to be ordinarily resident in South Africa:

  • an intention to become ordinarily resident in a country; and

  • steps indicative of this intention having been or being carried out.

This is interpreted to be a person's usual or principal residence and it would be described more aptly, in comparison to other countries, as the person's "real home".

physically present

In terms of the provisions of the Act, an individual will be considered to be tax resident here if he is physically present in South Africa for the following time periods:

  • More than 91 days in the tax year in which the determination is made; and

  • More than 91 days in each of the five preceding tax years; and

  • 915 days in aggregate during such five preceding tax years.

The physical presence test will not apply to a person if he is a tax resident of a country with which South Africa has concluded a Double Taxation Agreement ("DTA"). An individual who becomes tax resident in terms of the physical presence test will no longer be considered to be tax resident here if he spends a continuous period of 330 full days outside of South Africa, immediately after the day on which such person ceased to be physically present in South Africa.

It follows from the above that upon emigration, a person will cease to be ordinarily resident in South Africa. However, he can remain a tax resident of South Africa, simply based on the amount of time spent in the country, subject to the provisions of a DTA concluded with the country the person now lives in.

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tax and exchange control implications of emigration