Ready to emigrate? Don't forget the tax and exchange control aspects

The word mobile generally means the ability to move freely and easily. When people say the world has become more mobile, this is what they mean. People move around far more easily than before. The world feels both smaller and bigger at the same time.

If you stop and think about it, how many people do you know who live abroad? Friends, siblings, former colleagues, children? The number is probably high. These days, it's easy to pack your bags and move abroad. A new culture, new food and a new way of life await.

There's another side to it, though, that we see a lot as tax practitioners. We are often the bearers of bad news and have developed an uncanny knack for ruining an otherwise exciting day. A client phones from their new home, excited, dreaming aloud about their new adventure. Then we start explaining the tax consequences of moving abroad, and a stunned silence usually follows. Unfortunately, this is a scene that plays out all too often.

Moving abroad is not simply a case of packing your bags and leaving. There are tax, regulatory and practical consequences you need to consider. If you have ever had to end a long-standing relationship, you will know that things are rarely simple. In many ways, that is what happens between you and SARS when you leave South Africa.

Emigration from South Africa is a formal process. It helps to think of it in three parts:

• Moving your life
• Tax
• Banking and exchange control
   

1. Moving your life

By moving your life, we mean the practical process of relocating your ordinary life to a new country. This means finding somewhere to live, securing employment, getting the right visa or residency, and physically moving your assets.

This is the most important step. These days, where you live and where you pay tax are usually connected. Where you spend your time is where your tax residency will most likely be. Your tax and exchange control position does not change merely because you decide you want them to. Moving your life changes them.

This is also the stage where tax and exchange control planning should take place. Before you leave, you need to understand the tax consequences of becoming resident in a new country. You need to know what the liquidity consequences will be when you cease your South African tax residency. You also need enough liquid cash and investments offshore. South African residents must follow a formal process to externalise assets.

Too often, people focus on the excitement of the move and only think about the tax planning afterwards. By then, it may be too late to structure things efficiently.

2. Tax

Leaving South Africa and ceasing to be tax resident triggers what is known as an "exit tax". The name sounds dramatic, but in principle the concept is simple.

When you cease South African tax residency, SARS deems you to have disposed of your worldwide assets at market value. The valuation date is the day before you cease tax residency. If those assets are standing at a gain, capital gains tax may arise. The deemed disposal does, however, exclude certain assets. The most common example is South African immovable property, such as a home.

The important point is this: you need to understand the potential exit tax before you leave. If there is a tax liability, make sure you have the liquidity to settle it in good time. If not, penalties and interest may follow.

You only notify SARS formally once you have left and ceased tax residency.

After leaving, follow the SARS process on eFiling and submit the required supporting documents. See: Cease to be an SA Tax Resident | South African Revenue Service. Once SARS is satisfied, it will issue a confirmation of non-residency.

This confirmation is important, not only from a tax perspective, but also from a banking and exchange control perspective.

3. Banking and exchange control

This is the part many people forget, but it is a critical step.

Once you cease to be resident, make sure your financial institutions reflect your correct status on their systems. You don't want your bank or investment provider to report you as a tax resident when you are not. Incorrect reporting can create unnecessary complications.

Once you receive your confirmation of non-residency from SARS, provide it to your bank. The bank can then update your accounts from resident to non-resident status.

If you wish to externalise assets, you must also consider exchange control rules carefully. South African residents can generally externalise up to R2m a year under the single discretionary allowance. Larger amounts require additional tax clearance and approval processes.

In the year of emigration, you have an R2m travel allowance. If you don't use it that year, you lose it. Remitting income generally does not require an Application for International Transfer (AIT). Exceptions include directors' fees and rental income. The externalisation of capital requires an AIT. With an AIT and an amount below R10m, your bank can approve the externalisation as an authorised dealer. If the amount exceeds R10m, you need both an AIT and South African Reserve Bank (SARB) approval. SARB approval can take four to six weeks, sometimes longer.

This is why planning matters so much. If you leave unprepared, your assets could be stuck in South Africa while you wait for approvals. Depending on complexity, this can take six weeks to six months, or longer.

A final thought

People often speak about emigration as though it's simply a lifestyle decision: a bold move, a new beginning. And it is all those things. But it is also a tax event, an exchange control event and a financial planning event.

The emotional part of emigration may begin with booking a ticket and packing a suitcase. The legal and financial part starts much earlier.

With proper planning, you can manage the process smoothly and efficiently. Without it, what should be an exciting new chapter can quickly become expensive, stressful and administratively painful.

Once you've moved your life, dealt with the tax and updated your banking status, you can settle in and enjoy life abroad.