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Did you know that when emigrating, the month you leave South Africa has a significant impact on your income tax obligations? In the year of emigration, taxation can vary depending on how much time out of the tax year you were not physically in South Africa. When emigrating it is therefore essential to ensure that South African Revenue Service (SARS) no longer identifies you as a tax resident – unless the income you earn in a different country is from a South African source.
income tax
Here are a few factors to consider:
  1. Income tax

Under the current tax law, monthly income tax is calculated on the assumption that monthly earnings are consistent in value throughout the entire tax year. Due to the nature of this calculation, the taxpayer would receive a refund upon submission of their income tax return for any overcharged income tax, if it is shown that this taxpayer were unemployed for a period of the year, or not working in South Africa.

Therefore, if you emigrate later in a tax year, your refund will be smaller than if you had emigrated earlier in the tax year. Your tax bracket also has more of an impact on tax charges.

  1. Capital Gains Tax

Theoretically speaking, when changing your tax status, it is considered a sale of your worldwide assets from your local self to your foreign self on the day of emigration. This action triggers a capital gains tax (CGT) event, also known as “exit tax”. CGT is determined based on the profit arising upon the sale of an asset.

In South Africa, a portion of any capital gain is added onto your other income for the concerned tax year and can vary from 7.2 % to 18 % depending on your tax bracket. Hence, financially the most logical course is to leave earlier in the tax year to ensure that you are in the lowest tax bracket.

Another factor to consider is that property in South Africa is always subject to CGT when it is sold. Therefore, if you plan to sell property within the same tax year that you plan to emigrate, you could end up paying CGT on all your assets combined. This can be avoided if you consider selling your property in the tax year before or after your emigration.

  1. Primary residence

Your place of residence is exempt from capital gains tax up to the threshold of R2 million. When emigrating you may face the question of whether your primary residence is still considered as such, if you sell it after you have emigrated. If your property was on the market for sale before you have left, it will still be considered primary for as long as two years after, provided it remains on the market.

It is advised that if you choose to rent out your home, that you not do so before you have left, or it will no longer be considered your primary residence and will then be subject to capital gains tax.

  1. Tax in your new country
Before officially emigrating, it is important to do research on when your new country will consider you as a tax resident and what obligations accompany this. South Africa has Double Taxation Agreements (DTA’s) with many countries worldwide. These DTA’s were created to ensure that you as an individual are not taxed unfairly.

At MMS Group our tax consultants take pride in their integrated and consultative approach to ensure that we provide you with quality service. We are leaders in South African Income Tax matters and have professional access to member firms across the world to ensure you are fully cognizant of income tax status in your destination country. Reach out to our team of tax consultants for support in the finalizing of your emigration income tax matters.

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