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Benefits and implications of completing tax emigration as South African business owner

Benefits and implications of completing tax emigration as South African business owner

March 11, 2024


Whether you’re emigrating from South Africa as an individual or as a family, there’s a lot to think about, and if you’re a business owner, the list of considerations gets even longer. This is why it’s important for you to do your homework on your international relocation as soon as possible and know what to expect. Completing tax emigration as a South African business owner can have both financial, practical and tax benefits and implications, so your decision making process will ultimately depend on your specific circumstances and future plans. If this seems overwhelming right now, let’s break it down for you into simple terms, and make everything more manageable to process.

What is tax emigration from South Africa?

Tax emigration is the process by which you will inform the South African Revenue Service (SARS) that you no longer meet the requirements for tax residency in the Republic, and request that your tax status be changed from resident to non-resident, accordingly. By ceasing your tax residency in South Africa and becoming a non-resident, you will simplify your tax responsibilities with SARS, and in some cases, even sever ties completely.

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What are the benefits of completing tax emigration from South Africa?

  1. You will be able to access your retirement annuities: Perhaps the most significant benefit of tax emigration from South Africa is the ability to cash in your South African retirement annuities (RAs) before the standard retirement age, once you have maintained your new non-resident status for a minimum of three years. This can provide a substantial sum to invest in your life abroad or to fund your next business venture.
  2. You will reduce your tax burden: Depending on your new country of residence, you may face a lower overall tax rate on your worldwide income, including business profits, which can lead to significant financial savings.
  3. You will simplify your financial situation: By severing ties with South Africa through tax emigration, you can simplify your tax reporting and avoid potential double taxation headaches.

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What are the tax implications of tax emigration from South Africa as a business owner?

As a South African business owner considering tax emigration after permanently relocating, here are the major tax implications you need to be aware of before you make any big decisions:

  1. Deemed disposal for Capital Gains Tax (CGT) purposes: Upon tax emigration, you are deemed to have sold all your worldwide assets (excluding South African immovable property) at market value, the day before your date of emigration. This triggers a capital gains tax liability on any appreciation in the value of your assets since acquisition.
  2. The impact on your business: This potentially significant CGT applies to your business assets (shares, equipment, inventory) as well. Analyse the potential tax burden carefully and strongly consider consulting a professional.
  3. Tax-free allowance: You have a R1 million travel allowance exempt from CGT for personal effects when emigrating. This is a once-off allowance and cannot be used again.

Read more: Planning to emigrate from South Africa? Here’s what you need to know about tax.

What are the income tax implications of tax emigration from South Africa?

  1. South African source income: As a non-resident, you will only be taxed on South African source income, such as rental income from South African property, interest earned on South African investment/savings accounts, or your South African pension income.
  2. Worldwide income and foreign business income: These can no longer be taxed in South Africa, but may be subject to tax in your new country of residence, so you’ll need to research their tax laws carefully.
  3. South African company: If you continue operating a company in South Africa, it will still be subject to corporate income tax in South Africa.

Read more: Emigrating? Don’t forget your tax obligations in South Africa when you leave!

What are the practical implications of tax emigration as a South African business owner?

The impact on your business depends on its structure. Sole proprietorships automatically cease to exist when you emigrate, while companies can continue operating but may face additional compliance requirements. Realistically speaking, the process of tax emigration can be complex and time-consuming which makes it advisable to seek professional assistance, to avoid delays and unexpected surprises. Furthermore, it’s important to remember that tax emigration means closing a financial chapter in South Africa, which has both sentimental and practical implications as a business owner.

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Additional factors to consider when weighing up tax emigration as a South African business owner
Your new country of residence: Tax laws and regulations vary greatly between countries. Research the tax implications in your chosen destination thoroughly, to ensure you’re making the right decision as a business owner.
Your future plans: Do you plan to maintain any business ties with South Africa? If so, tax emigration might not be your best option.

FinGlobal: cross-border financial specialists for South Africans

By now you’ve probably come to the realisation that it’s in your best interest to seek professional advice on your move. Consulting with a qualified tax advisor proficient with both South African and your chosen country’s tax laws is essential to ensure a smooth transition with minimal stress. That’s where FinGlobal can help. With a full team of certified international financial planners, lawyers, chartered accountants, tax specialists and bankers, you can rely on our expertise in all areas of cross-border finance. From expat tax compliance, to tax clearance for your business, to tax emigration and retirement annuity withdrawal, FinGlobal is ready to assist.

To learn more about FinGlobal’s reliable, cost-effective and speedy services, leave your contact details in the form below and we’ll be in touch to see how best we can assist you.

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