Small business tax has been adjusted to be in line with the tax threshold for individuals. Picture: 123RF./LE MOAL OLIVIER
Small business tax has been adjusted to be in line with the tax threshold for individuals. Picture: 123RF./LE MOAL OLIVIER

Currently, a South African tax resident is exempt from paying tax in SA on any money earned as an employee overseas if you are out the country for 183 full days in a 12-month period (of which at least 60 of those days must be consecutive).

However, a proposed amendment set to come into force from March 1 2020 will affect certain South Africans who have moved or are working overseas. The government has proposed amending the legislation to the effect that money earned up to R1m per tax year will be exempt; any amount earned overseas over the R1m will be subject to possible taxation in SA.

If you are working or living overseas you should consider how this may affect your circumstances so as not to be caught out by this amendment.

Tax residency

Let's start with tax residency. The general rule is that anyone who considers SA their home is a South African tax resident. So, if you were born in SA and live in SA you will be a South African tax resident.

However, if you leave SA with the intention of moving permanently to another country, chances are that you are no longer tax resident in SA. This process is called breaking tax residency and is primarily determined by your state of mind. The South African Revenue Service (Sars) has, however, provided indicators to assist in determining whether you are tax resident or not. Some of these are as follows:

1. An intention to ordinarily reside in SA (most important consideration);

2. Your most fixed and settled place of residence;

3. Where you stay most often and your habits;

4. Your place of business and personal interests; and

5. Employment and economic factors.

In other words, if you leave SA with the intention of moving permanently to another country and subsequently settle in that country, it is likely that you have broken tax residency with SA.

If you have broken tax residency with SA, you don't need to worry about the amendment to the tax legislation.

It must be kept in mind that when you break your tax residency there is a deemed capital gains event (meaning that even if you do not sell assets, you are still liable for capital gains tax) on some assets held. Immovable property is not subject to this deemed event; the most common types of assets that affect individuals are shares held.

Proving you've broken tax residency

It is now important to determine how you can prove to Sars that you have broken tax residency so that the proposed amendments do not affect you.

Whether you're a tax resident in SA primarily depends on your state of mind, which can be difficult to prove. This is where Sars' factors become important.

If you're able to show Sars that your new home and economic and personal ties (among others) are in the new country, you should be able to prove you have broken tax residency.

You can also submit a tax return to Sars indicating you have broken residency - this is an option on the first page of your tax return. In addition, there are documents signed between countries called double taxation agreements (DTA). These give taxing rights to the signatory countries to the document. For example, SA has signed a DTA with the UK. If you're a resident of the UK in terms of the provisions in the DTA, you can't be a tax resident in SA.

Formal/financial emigration

The concept of formal/financial emigration is separate to breaking tax residency. It is an exchange control concept and is dealt with by the South African Reserve Bank.

You may wish to formally emigrate, but don't have to. This involves an application to the bank and will result in all your South African funds being transferred into an 'emigrant's capital account'. Only the bank that has opened the account can deal with the funds.

However, if you've left the country it is not necessary for you to formally emigrate. It has no effect on your tax residency, although it can also be used as an indicator to Sars that you've broken tax residency.

There are a couple of instances where you must formally emigrate:

1. If you have a retirement annuity in SA that you wish to liquidate (unless you're already 55 in which case you don't need to formally emigrate); and

2. If you have more than R10m you wish to take out of SA.

Your citizenship is not affected by formal emigration and you get to keep your South African passport.

Effect on South African assets

Breaking tax residency has no effect on your assets (besides from the deemed capital gains event). However, if you're earning income from these assets, you must declare it to Sars and may be subject to taxation depending on the amount earned and type of income.

When you formally emigrate all your SA assets will be transferred into an emigrant's capital account with your bank. For example, if you have cash in bank accounts, these accounts must be closed, and the money transferred to the emigrant's capital account.

If you have a retirement annuity that is liquidated, the money must be paid into this account. You must get approval from your bank when dealing with these assets once they are in the emigrant's capital account.

You are still entitled to keep any immovable property that you own in SA, but the title deed must probably be marked that the property is now owned by a non-resident. If this property is subsequently sold, the proceeds must also be paid into the account. On a final note, if you are a South African citizen working abroad temporarily and don't break tax residency, any tax that is paid in the country where you are working should be set off against any tax that is owed in SA on this foreign income.