4 common myths about financial emigration

There is a lot of misinformation among the South African expatriate community about the amended expatriate tax law taking effect on March 1, 2020 and the process of financial emigration, according to Melanie Browne, financial emigration process specialist at Tax Consulting SA.

“We often have clients approach us where they have been subjected to scaremongering or solicited by ‘one-man’ bands promoting their own agenda,” comments Browne.

Financial emigration is the formal process to note oneself as a non-resident for tax and exchange control purposes in South Africa. This formal process is done through the SA Revenue Service (SARS) and the SA Reserve Bank (SARB).

“Undergoing the Financial Emigration process, proves one’s intention to permanently reside outside of SA, which coincides with SA tax residency tests,” explains Browne.

Current credit and debit cards are not allowed to remain open, for instance, and credit cards will have to be paid off and closed.

Furthermore, only one “authorised dealer” can be used per application due to the complexity of monitoring this type of application. Thus, bank accounts with other banking institutions will need to be closed.

Financial emigration does make provision for withdrawals of lump sum values from retirement annuity funds as one has ceased tax residency.

Income such as interest and rental on fixed property may continue to be earned after the financial emigration process, however, these funds must be substantiated by the production of supporting documents, such as rental agreements.

Browne explains four common misconceptions.

Misconception 1: You must close your SA bank account

One can keep an SA bank account and all current South African debit orders can remain the same.

Provided that the funds have been declared, transfers out of an emigrant capital account can be made.

Transfers into a South African bank account can also be made but supporting documents for the source of funds may be required to authorise these funds, says Browne.

Misconception 2: You must liquidate all your South African assets

One’s asset portfolio can remain the same even once the SARB process is complete. One can still hold, and further contribute, to assets in South Africa and may even gain more assets in South Africa should one wish to.

Misconception 3: You must give up your passport

Once you have completed the financial emigration process, you still remain a South African citizen and can retain your South African passport.

Misconception 4: You do not need to file tax returns in SA anymore

Once financial emigration is concluded, this does not mean that you are exempted from submitting yearly tax returns with SARS. One will not be automatically de-registered from SARS, explains Browne.

After financial emigration, only South African sourced income would need to be declared. Once you dispose of all your assets such as bank accounts, properties, trusts, shares and policies, then you can deregister for tax in its entirety, through a formal process with SARS, and then one will not need to submit any tax returns.