Proper emigration procedure is crucial to manage expat tax

In an attempt to add some clarity to the provisions of the newly instated expat tax, Expatriate Tax Legal Manager at Tax Consulting SA Jonty Leon has provided a detail breakdown of the varying categories of non-resident South Africans, and the degree to which the new legislation will affect them.

According to Leon, there are three types of South Africans living abroad, all three of which fall under the broad umbrella term of ‘expatriates.’ The first includes individuals who have emigrated and settled abroad for good. The second consists of those who have not emigrated but are tax residents in a foreign country.

The last category – which will be the affected set according to Leon – consists of individuals who are tax residents in South Africa. The new legislation is looking to ease the strain on the South African Revenue Services  (SARS) and minimise the drain of resources by imposing heavy tax on wealthy South African expats.

As per expat tax stipulations, South Africans living abroad who earn in excess of R1 million per annum could be paying taxes as high 45% on their income. The new legislation has sparked a flurry of activity amongst the expat community, who are scrambling to avoid losing such a substantial chunk of their income.

Leon has some answers for this community. “The most effective way for the change in legislation to legally have no effect on a taxpayer is to become non-resident for tax purposes. Being non-resident would mean that the expat exemption does not apply to the taxpayer,” he said.

Leon continues to explain that a crucial segment to avoiding the expat tax is to communicate clearly with SARS. Where most signal their emigration to the South African Reserve Bank, Leon highlights that a successful emigration application must include an Emigration Tax Clearance Certificate from SARS.

“If you have not financially emigrated, we foresee an uphill battle to discharge your onus of proof that you are no longer ordinarily resident,” said Leon. As a result, he recommends that expats take a cautious approach to their emigration applications, ensuring that they comply with each SARS stipulation.