If one plans to relocate from South Africa then tax planning is necessary to ensure that one does not get caught in the pitfalls of moving abroad, whether this is from the perspective of possible double taxation, a too-high tax burden or as a consequence of the exit tax.

There are certain tax obligations that need to be met when one exits South Africa. Depending on each taxpayer’s circumstances, a strategy can be put in place to minimize their tax obligations and ensure full compliance. As a first step, it is best to begin with a tax diagnostic of your tax profile and, from there, consider one’s tax residency status and how your banking will be affected as an expat.

Upon emigration, one of the most pertinent issues to be addressed is whether a taxpayer will still be considered a “resident” for tax purposes in South Africa.

Expatriates whose intention is to remain abroad permanently, will qualify for the Financial Emigration (FE) process. This should be considered by South Africans who have departed with a permanent intent to reside abroad.

The FE process is once-off and will enable expatriates to permanently break their status as South African tax residents. This will also enable them to encash their retirement fund interests in South Africa, sans apportionment for an annuity, after three years following their residency cessation date.

If the taxpayer intends on returning to reside in SA again one day, then they may consider a temporary cessation of their tax residency via the DTA (if there is one in place), should the country they are in have a DTA treaty with SA. However, ceasing tax residency does not automatically happen – this must be formalized with SARS in every case.

Deciding on whether to break one’s tax residency or not, is a complex matter. It also is a question of whether one actually qualifies to cease their tax residency or not.
There are many factors to consider in each individual taxpayer’s situation, such as their intentions for the future, type of employment or other income earned, as well as foreign and local assets.

All of these factors, and others, would have an impact on what the individual will qualify for in terms of tax relief. The formal process of changing one’s tax residency status is a legal process that is undertaken with SARS and the authorized dealers (banks) in South Africa. It is, unfortunately, not a simple application – it must be considered in detail and submitted correctly, to ensure full compliance.