In recent years, South Africa has seen a notable rise in financial emigration. This shift comes with significant tax implications, as individuals who cease to be tax residents must navigate complex regulations and financial considerations. Understanding these implications is crucial for anyone considering this move. Financial emigration refers to the formal process by which South African taxpayers alter their tax residency status, change their status with the South African Reserve Bank (SARB) for exchange control purposes and relocate their financial assets to other countries. This often involves transferring wealth, investments, and retirement funds offshore. The South African Revenue Services now mainly oversees this process, allowing individuals to terminate their tax residency in South Africa while effectively transferring their finances overseas.

A pivotal aspect of successful financial emigration is the change in tax residency. South Africa employs two main criteria to assess tax residency: the Ordinary Residency Test and the Physical Presence Test.

• Ordinary Residency Test: This test determines whether a person’s primary residence is in South Africa. If an individual’s permanent home is located in South Africa, they will be classified as ordinarily resident, irrespective of their time spent abroad.
• Physical Presence Test: Should the Ordinary Residency Test not be met, the Physical Presence Test is applied. This test evaluates the number of days a person resides in South Africa over six years. Satisfying this criterion indicates tax residency in South Africa, subjecting the individual to its tax regulations.

Failing to meet these residency tests may result in a change of tax status, influenced by any double taxation agreements (DTAs) between South Africa and the new country of residence. Generally, once individuals have financially emigrated, they are no longer responsible for South African taxes on their worldwide income, although they may still have tax obligations on South African-sourced income, such as rental earnings or dividends from local companies. Moreover, individuals must become acquainted with the tax laws of their new residence, which could include different rates, reporting requirements, and potential exit taxes upon leaving South Africa. South Africa has DTAs with over 70 countries (e.g., the UK, US, Australia), which prevent double taxation on the same income. DTAs with countries like the UK or Australia can reduce tax burdens, but their benefits depend on the proper structuring of income sources.

When individuals cease to be tax residents of South Africa, several tax implications arise. A significant consequence is the exit tax, which is charged on the capital gains of worldwide assets at the time of changing tax residency. This tax highlights the importance of understanding how capital gains are calculated and reported.

Furthermore, since 2021, changes to legislation mean individuals must wait three years after ceasing tax residency to access retirement annuities as lump sums, adding another layer of planning.

While financial emigration can provide opportunities for a more secure financial outlook, it is vital to approach this decision with careful thought and professional support. The complexities surrounding tax implications, asset relocations, and compliance obligations can be overwhelming. Therefore, it is advisable to consult a qualified expert who has expertise in both South African and international tax laws.

Our professionals can offer personalised guidance, helping you navigate the intricacies of the financial emigration process and ensuring your decisions align with your financial aspirations and circumstances.


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