South Africa's Expat Tax March 2020
Financial Emigration is not the solution everyone is claiming it to be
By: Tax Smart Solutions
The reality is financial emigration is not the only answer and more importantly is being used as a tax planning tool that may carry with it severe repercussions.
Some South Africans are being 'advised' to financially emigrate and to do so when there is no need for them do it. Others do not understand the tax liabilities it brings with it such as Capital Gains Tax. Importantly the repercussions of financial emigration both now and in the future are also not fully understood nor explained by the "advisors".
Chirag Lakhani of Tax Smart Solutions explains the repercussions of financial emigration
"South Africans that financially emigrate need to nominate a bank, known as the authorised dealer, to handle their financial emigration.
This bank will then require details of all your assets and liabilities in South Africa, and with whom you will lodge the relevant custody. It will be this bank you will only be able to hold one bank account - a blocked Rand account. This blocked Rand account carries with it certain restrictions on how you can use these funds.
The title deed of any property in South Africa must, as part of the emigration process, be surrendered to the same bank holding your blocked Rand account.
In other words unless your authorised dealer is happy with your asset custody and with your debts and ability to secure and service them they will not process your financial emigration.
For those South African offshore workers in areas where there is no chance of them obtaining residency, in other words they are more than likely to return to South Africa at some point in the future, there are also major repercussions on their return back home. Lakhani explains:
"On their return South Africans will be treated as a non resident from an exchange control prospective (unless they formally immigrate back into South Africa) meaning you will face borrowing restrictions and banking restrictions, i.e. you will only be allowed a non resident bank account. Non resident bank accounts cannot accept Rand paid inside from South Africa, imagine you are unable to receive your local South African salary."
Some South African offshore workers will face tax bills of up to 45% of their earnings in excess of ZAR1,000,000 from March 2020 but Lakhani says that with correct planning in place this can be mitigated.
"The new tax changes are aimed primarily at offshore workers, such as your 30 days on and 30 days off arrangement. They also typically have a physical base, such as the family unit here in South Africa, Until now they have been exempted by 'days out of the country', but from March 2020 this will fall away. The bright side is SARS have given plenty of warning allowing for correct tax planning to be put into place."
In general those South Africans who have truly moved abroad have little to fear from the new regulations and have no reason to financially emigrate and incur such costs and possible issues should they return to South Africa. Lakhani does however stress:
"Many South Africans have simply upped and left South Africa without due process of informing SARS, this can lead to problems and tax bills as they may still be viewed as ordinary tax resident in South African and subject to tax in South Africa on their worldwide income. It's a great time to check out your situation and get your record keeping and reporting put right."
For those facing an increased tax burden there is time to plan accordingly but it is essential to get the correct advice. There are solutions, financial emigration is not the holly grail answer nor is it the only one or most correct in many cases.
Chirag Lakhani is one of the co-founders of Tax Smart Solutions which specialises in providing tax planning to South Africans working offshore. Tax Smart can be contacted via their website on https://www.tax-
+ 27 823257028