Leaving SA: should you consider ‘formal’ emigration?
Recent proposals by National Treasury to tax the foreign earnings of South Africans working abroad have led many to consider ‘formal’ emigration – instead of just relocating for the purposes of employment. Formal emigration could have significant implications, however, and not only from a tax perspective. In this article, we outline some of the issues to consider before taking the leap.
What does ‘formal’ emigration mean?
Whereas relocation means moving to a foreign country without exporting your assets, formal emigration means settling in another country – with the option of taking all of your assets with you. It involves a South African Reserve Bank (SARB) process resulting in a change of your residency status for exchange control purposes.
All individuals leaving South Africa to take up permanent residence in any country outside what’s known as the Common Monetary Area (CMA) – South Africa, Namibia, Lesotho and Swaziland – have the option of placing their emigration on record with the SARB. This process is known as ‘formalising’ your emigration. It’s entirely separate from any dealings you may have with the Department of Home Affairs, and therefore doesn’t necessarily impact your citizenship or the use of your South African passport. It does, however, have other consequences.
Who should consider formal emigration?
Formal emigration may be an option for South African residents who want to relocate abroad permanently, or who have already done so, and wish to:
- Take out their South African assets in excess of the annual foreign investment and discretionary allowances (currently R11 million)
- Take out inherited South African assets in excess of the annual foreign investment and discretionary allowances (R11 million)
- Take out cash in South African retirement annuities before the age of 55 or before retirement from the fund
- Invest in South Africa or elsewhere within the CMA without creating ‘loop structures’
- No longer be ‘ordinarily resident’ in South Africa for tax purposes.
Emigration allowances – which SA assets can you take out?
If you emigrate formally, you can take all your assets with you. This must, however, be done in the form of cash or by having your listed and unlisted equities (issued by South African resident companies) endorsed as ‘non-resident’.
You can also export household and personal effects, motor vehicles, caravans, trailers, motorcycles, stamps, coins and minted gold bars (excluding coins that are legal tender in South Africa) per family unit or single person within an overall insured value of R2 million and under cover of a South African Revenue Service (SARS) customs declaration.
It’s important to note that the 10% exit penalty previously levied by the SARB on externalised assets no longer applies.
How should you go about formalising your emigration?
First, you need to obtain an emigration tax clearance from SARS. Note that this is not the same as the tax clearance required for the R10 million foreign investment allowance, and will require a signed Form MP336(b) to be submitted with the tax clearance request. For persons who have been abroad for an extended period and have not owned any assets during this period, the SARS emigration tax clearance may be waived.
Second, the completed Form MP336(b), together with the relevant supporting documentation and the emigration tax clearance, needs to be submitted to your local authorised dealer (your local bank), which will submit your emigration application on your behalf to the SARB. You will need to prove that you’ve been given permission to take up permanent residence by the appropriate authorities of the country to which you are emigrating.
After you have left South Africa, you may not return for a period of five years, except for short stays, business trips or holiday purposes. If you don’t comply with this rule, your emigration will be treated as a ‘failed emigration’ and the SARB may require that all the assets you took out of the country be repatriated to South Africa.
Consequences of formal emigration
The process of formal emigration may trigger a cessation of your South Africa tax residency. This will in turn lead to SARS regarding your worldwide assets (except South African fixed property and some employment-related shares) as being ‘disposed of’ at market value for capital gains tax (CGT) purposes. Having to pay CGT to SARS may leave you out of pocket, since there was no actual sale of the assets – this potential consequence has been known to halt many would-be emigrants in their tracks.
If you emigrate formally, you will able to retain your South African passport, but you’ll need to ensure that you obtain written permission from the Department of Home Affairs before starting any application to obtain another nationality. Failure to do so can result in you forfeiting your South African nationality.
Your remaining South African assets (or income deriving from them) after emigration – for example, title deeds in relation to fixed property – will need to be placed under the control of an authorised dealer (your local bank). Your local bank account will be designated as an emigrant’s capital account (previously referred to as a blocked rand account) – the funds in this account may be used locally or transferred abroad, subject to SARB approval. Similarly, the proceeds of the sale of local property (net of CGT payable to SARS) can be taken out via the emigrant’s capital account.
Since the process of formal emigration could have specific and significant consequences, we recommend that you seek professional advice before taking any decisions. Kindly contact Anton Maskowitz or any other member of the Sanlam Private Wealth Fiduciary and Tax team for further assistance.