Financial emigration is currently a hot topic due to the new amendments to the Income Tax Act, which is set to come into effect from 1 March 2020. Many South African citizens reap the benefits from the Act as it is stipulated at this stage, but it is important to understand how the new Income Tax Act will affect us.
What is financial emigration?
Financial emigration is the process of changing your status with the South African Reserve Bank, for exchange control purposes, from resident to non-resident. It does not affect your citizenship status unless you apply for citizenship in another country. In this case you would need to apply for dual citizenship.
What is the biggest change that will affect SA citizens under the new Act?
Currently, remuneration earned by SA tax residents for services rendered abroad is exempt from SA tax. This applies when the resident spent more than 183 full days (of which 60 days should be continuous) outside of SA in any 12-month period during which those services were rendered.
Under the new Act, the foreign earnings exemption will only apply up to R1 million of foreign income earned in a tax year. Any income exceeding the R1 million threshold will no longer be exempt under the foreign earnings exemption. The above requirements regarding days worked abroad still need to be met.
This new threshold only applies to SA tax residents. Anyone who is not a resident for tax purposes will not be affected by the amendment and they will only pay tax in the country where they now live and are employed.
If you are taxed in SA on the amount earned exceeding R1 million, you may get relief in terms of Section 6quat of the Income Tax Act. For SA tax residents. The effect of the 6quat rebate means that all taxes paid abroad on income in excess of R1 million will be rebated against the SA taxes payable on that same income. The earnings exceeding R1 million will therefore not be taxed twice, but at the higher rate of SA or the foreign country respectively.
Financial emigration is a complex process
Undergoing the process of financial emigration is complex. It is advisable to speak to a specialist in order to make the best decisions based on your personal situation.