Financial Emigration (FE) and Double Tax Agreements (DTA) became instant buzz words among expats and tax experts alike. While the ideal should be to seek every possible relief for clients, there are independent tax advisors who mislead clients or give them misinformation to attain the business.
This negligent and unethical conduct has a catastrophic effect on the individual’s financial status in the long run, not to mention the severe legal consequences that is sure to follow. Now more than ever, South Africans in the process of emigrating or earning an income in another country, must be vigilant when seeking counsel from tax consultants.
How to tell the wolf from the sheep?
Unethical tax advisors confuse clients with legal jargon and financial terminology, while making promises that can’t be kept or assumptions that have no merit. While their actions create a lot of confusion about expatriate taxation laws or SARS submission processes, the challenge has become to avoid these agents of misinformation.
Here are some red flags to look out for
If you are in consultation with a tax advisor, or you are in the market for advice, there are sure-fire ways to know that you are being misled. Any of these should set off alarm bells:
- Now that you live abroad, you don’t have to submit or declare anything to SARS;
- SARS will never find you in another country;
- You automatically qualify for a DTA;
- You are seen as a non-resident if you have been outside of SA long enough;
- You must give up your passport and or dispose of all your South African assets;
- SARS is not asking for a tax residency certification.
These points seem rather mundane mid-conversation, but, once in effect, each untruth can have devastating financial consequences. Here is why:
Now that you live abroad, you don’t have to submit or declare anything to SARS
It is a common misconception that SARS will forget or forgive transgressions. In reality, every stone gets turned over twice. While an uninformed consultant or advisor might sell clients on the idea that the tax regulating authority in their country will forget about expats, professional tax practitioners will stay up to date with current legal consequence. As long as you are a tax resident of South Africa, you must submit annual tax reports and declare additional income.
SARS will never find you in another country
As per the Common Reporting Standards (CRS) and the automatic exchange of information, SARS receives information on offshore income and financial information of South African tax residents. If you have not been submitting tax returns declaring your foreign income, you will be seen as non-compliant and face harsh consequences. More so, if you do fill out tax returns and they do not correlate with the information SARS has been privy to, it could be seen as a criminal offence.
You automatically qualify for DTA
When it comes to taxation, you seldom qualify for anything by default. There will always be a submission process. It’s wrong to assume that being subject to tax in both countries automatically exempts you from paying tax in the country where you are not currently residing. DTA’s are a relief mechanism that must be applied and, so doing, “claimed” from SARS. As such, they will almost always review or challenge every application for tax exemption.
You are seen as a non-resident if you have been outside of SA long enough
Your tax residency status will never change unless you have applied and been granted that change. Even if you are a taxpayer who temporarily wants to cease your tax residency, there is a procedure to follow. Even if you have given up your passport, you will still be taxed in SA until you conclude a legal emigration process.
You can get permanent non-residency by way of a DTA
DTA non-residency needs to be claimed annually and there is no guarantee that you will qualify. In no way does it permanently alter your tax residence status. If you have no intention of returning to South Africa, then financial emigration is the only way to cease your tax residency. Then you can seek to obtain an emigration tax clearance certificate. However, if you are a taxpayer who is temporarily ceasing tax residency, you must still submit your tax returns for income generated in South Africa.
You must give up your passport and or dispose of all your South African assets
You do not lose citizenship by Financially Emigrating. You are also able to financially emigrate without being a permanent resident or citizen of another country. Furthermore, even if you cease your citizenship in South Africa, your tax residency status still remains. You can keep all your assets in South Africa after ceasing your tax residency.
When considering your foreign earned income, never forget the tax man in SA. Ensure you are complying with your new local tax jurisdiction and the South African one, as well as the income tax laws in both. Whether you plan to claim DTA relief or follow the financial emigration route to cease tax residency, it’s imperative to consult a licensed and professional service provider with a strong legal component. Ensure that you avoid finding yourself liable for a practitioner’s negligence and don’t fall prey to misleading advice. Remember, if the solution sounds too good to be true, it probably is.