Tax Consequences of Emigrating from South Africa

By | April 30, 2023

Emigrating from South Africa is a significant decision that requires careful consideration of various factors, including tax implications.

When you emigrate from South Africa, you are no longer a tax resident, and you must ensure that you comply with the tax requirements before leaving the country.

Failure to comply with the tax requirements can result in significant penalties and fines.

In this article, we will discuss the tax implications of emigrating from South Africa and provide practical guidance on how to navigate the tax requirements.

Tax Residency

Tax residency is a critical concept that determines your tax obligations in South Africa. You are considered a tax resident if you meet the following criteria:

  • You are ordinarily resident in South Africa; or
  • You meet the physical presence test.

The physical presence test requires you to be physically present in South Africa for at least 91 days in each of the current tax year, as well as the previous five tax years, and for at least 915 days in total during those five tax years.

If you meet either of these criteria, you are considered a tax resident in South Africa.

Exit Tax

Emigrating from South Africa can trigger an exit tax, also known as an emigration tax. The exit tax is a tax on unrealized capital gains that arise from the deemed disposal of your assets on the day before you cease to be a tax resident.

The exit tax applies to individuals who are tax residents for at least five of the previous ten tax years, and whose worldwide assets exceed ZAR 2.5 million.

The exit tax is calculated based on the market value of the assets on the day before you cease to be a tax resident. The tax rate is 18% for individuals and 36% for companies.

The exit tax can be a significant cost for individuals who own assets with a high market value.

Double Taxation Agreements

South Africa has entered into double taxation agreements with many countries to avoid double taxation of income.

Double taxation occurs when the same income is taxed in both South Africa and another country. The double taxation agreements provide relief from double taxation by allowing a tax credit for taxes paid in the other country.

Before emigrating, it is essential to review the double taxation agreements between South Africa and the country you are emigrating to.

Understanding the tax implications of the double taxation agreement can help you make informed decisions about your emigration.

Retirement Funds

Emigrating from South Africa can have significant tax implications for your retirement funds. If you have a retirement fund in South Africa, you must comply with the South African Revenue Service’s (SARS) requirements before you can transfer your funds out of the country.

There are two options for transferring your retirement funds out of South Africa. The first option is to withdraw your funds before you emigrate.

The withdrawal will be subject to tax, and you will be taxed at your marginal tax rate. The second option is to transfer your retirement funds to a recognised foreign fund.

The transfer will be tax-free if it complies with the SARS requirements.

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