Moving abroad? Keep in mind the tax on your SA assets

Emigration can be a difficult process for many. However much you try to forge a new life in a new country, a part of you seems to always remain in the country you grew up in and which, in some sense, will always be home.

This is more than just a psychological or intangible issue. For many emigrants, it’s a tangible thing too – many emigrants will often retain a portion of their assets in South Africa after they have left, which can be a headache if not managed properly.

We are frequently asked by non-tax residents who have investments in SA what they should be considering from a tax and estate planning perspective.  To answer that question, we should start by noting that nothing in life is certain but death and taxes, and this holds when you have investments in South Africa.

From a tax perspective, if you live in South Africa and are considered a tax resident, you are taxed on a worldwide basis i.e. you pay tax on your worldwide income and gains. However, if you are either an emigrant or a bona fide non-tax resident who does not meet South Africa’s tax residency tests, you would only be taxed in South Africa on a source basis.

This means that you will only pay tax on your South African-sourced income and gains. Examples of this include interest income, rental income, proceeds from the disposal of immovable property in South Africa, dividend income, and lump sums from pensions and annuities.

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As an emigrant or non-tax resident, when taxable income arises in South Africa, South Africa will levy tax on the relevant income, subject to a double taxation agreement or a ‘DTA’. A DTA essentially ensures that you are not taxed twice on the same income by different revenue authorities.

It’s important to bear in mind that although South Africa has concluded an extensive amount of DTA agreements, there are some countries, such as Monaco for example, where no DTA is currently in place, and double taxation can occur.

Death tax 

When it comes to the other, not particularly pleasant, certainty in life, death is unfortunately also taxable. Therefore, as an emigrant or non-tax resident with assets in South Africa, you must be mindful of estate duty and the deceased estate process (also known as “probate” abroad).

Like the position with regards to income taxes, South Africa will levy estate duty on “property or deemed property” situated in South Africa. The definition of South African “property” and “deemed property” is broad and will encompass most assets situated or deemed to be situated in South Africa.

Therefore, as an emigrant or non-tax resident, if you have assets that are situated in South Africa or deemed to be situated in South Africa, estate duty will be levied at a rate of 20% or 25%.

You may be thinking, what happens if the country in which I reside also levies death taxes? This is an important question because South Africa does not have estate duty treaties with many countries. South Africa only has treaties with the US, the UK, Botswana, Zimbabwe, Lesotho and Swaziland. This means that should you reside in a country that does not have an estate duty treaty with South Africa, your country of residence would levy death taxes along with South Africa, meaning your estate may be exposed to double death tax, without relief.

Finally, if you have assets situated in South Africa, you may need to go through the deceased estate process in South Africa. Certain assets might only be able to be dealt with by your nominated executor once they have a South African letter of executorship. If you don’t have a South African will to deal with your South African assets, then your offshore will may need to go through a resealing process in South Africa for the South African letter of executorship to be issued. The nature of your South African assets will determine what will be required on death and whether it will be best to have a separate will for your South African assets. It’s critical to obtain advice in this regard, to avoid lengthy administrative delays.

In summary, as a non-tax resident, you will be taxed in SA on your SA assets, both while you are alive and on your death. Make sure your emigration dream doesn’t become a nightmare for you and your heirs.  

READ MORE: Don't let your green card become a tax and compliance nightmare

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