On Tuesday 13 October 2020 in Parliament, National Treasury (“Treasury”) and SARS presented to the Standing Committee on Finance on a number of proposed amendments to legislation, which amongst others, would directly affect South Africans who have already moved abroad, or are planning on moving abroad. The feedback to stakeholders, specifically around the withdrawal of retirement funds upon financial emigration, was certainly one which was foreseen after it was proposed in the draft Taxation Laws Amendment Bill (“TLAB”) in July 2020.
Why is this bad?
Many South Africans abroad have formalised their non-resident tax status through Financial Emigration, and this process has now proven to be a thorn in SARS and National Treasury’s side. The change to the emigration rules, which is set for 1 March 2021, appears to be a desperate bid to stem the tide of South Africans making up their mind to ‘divorce’ South Africa fiscally through Financial Emigration. This means SARS will aggressively target expats as an untapped pool of potential revenue, exposing your offshore trusts, foreign income streams and other assets held abroad.
How will SARS find me?
Under existing international standards, South Africa participates in the automatic sharing of information between tax authorities on individuals’ financial accounts and investments. Government expressly stated in February 2020 that these cooperative practices will remain in place to ensure that South African tax residents who have offshore income and investments pay the appropriate level of tax.
What are the next steps to “avoid” the Expat Tax?
The announcement on 13 October appears to be the final warning – South Africans leaving SA have little over 4 months to financially emigrate under the current dispensation, and thereafter to withdraw their retirement funds, before it is locked in for 3 years minimum.
We are heading into unchartered territory, with a complete transformation of the financial emigration process – those that have been left behind will undoubtedly have tougher terrain to navigate come 1 March 2021.
We urge all South Africans working abroad permanently to formalise non residency. Financial emigration remains the main process in formally ceasing tax residency through SARS and SARB. Now is the time to comply with formalities and ensure your worldwide income is not liable for South African tax.