The signing of the National Health Insurance (NHI) in South Africa has sparked a wave of concern among various South Africans, especially with medical professionals, medically high-risk individuals, and cautious taxpayers. This healthcare reform initiative promises to provide universal healthcare coverage to all citizens, but its implementation has raised many unanswered questions. This may be the final straw that leads South Africans to emigrate.
Medical professionals have approach us to assist with their potential emigration due to not wanting to work for government. Families with at medically at-risk members fearing for their loved one’s future in SA. As well as numerous taxpayers uncertain about the tax burden for the funding of these healthcare provisions and the potential burden on the economy.
In response to the initial warnings about the potential challenges associated with the NHI, including uncertainties about funding, taxation and healthcare provisions, many individuals and families have sought professional assistance in emigration and externalising their financials and assets. This involves legally structuring their assets, investments, and income streams in a way that minimizes tax exposure on exit.
Thus, it's essential to note that emigrating and externalizing assets come with their own set of challenges and complexities. The South African Revenue Service (“SARS”) has strongly focused their resources and technological advancement towards the emigration formalities and externalising of funds. As seen through introduction of the Approval International Transfer (“AIT”) compliance pin process.
Navigating these legal and tax complexities requires careful financial planning, tax planning, transparency with SARS, hopping through red tape and adherence to the South African Reserve Bank (“SARB”) regulations. Emigration and asset externalization should therefore be approached with due diligence and professional guidance to ensure compliance, as well as tax optimisation.
Having a dedicated team of experts, who deal with this daily, we have developed a 10-point checklist of the most common steps in formalising one’s residency status. Addressing key areas of cessation as well as externalising one’s portfolio –
1. Tax Diagnostic: As with medical consultations, the first important step is to always diagnose the situation to allow for appropriately addressing the situation. As in cases we have noted where High Net Worth Individuals have a basic cessation process, whilst a young professional may be far more complex. Thus, being important to navigate the complexity and ensure tax compliance with SARS.
2. Asset Portfolio Planning: This involves a comprehensive assessment of an individual's assets, including investments, properties, businesses, and financial holdings. The goal is to develop a strategic plan for restructuring or divesting these assets in preparation for financial emigration and/or externalization.
3. Residency Advisory and Confirmation of Exit Date: Tax experts provide guidance on residency requirements and assist in confirming the applicable formal exit date from South Africa.
4. Affordability Check, Managing the Burden of "Exit Tax": When ceasing residency, a capital gains tax event is often triggered possibly resulting in a tax payable to the revenue service. Thus, it is important to check affordability and ensure this obligation is met for a successful emigration.
5. CIPC Compliance Check: For business owners, compliance with CIPC regulations is crucial, as this will hinder the ability to emigrate.
6. Golden Tax Year Return, to Declare Cessation and "Exit Tax": This refers to the tax year in which an individual ceases tax residency in South Africa. Emigration specialists assist in preparing and filing the return, which includes declaring cessation of residency and addressing any exit tax obligations.
7. Application to SARS for Confirmation of Non-Residency: Emigration requires formal confirmation of non-residency status from the SARS. Seen as the Golden Ticket for confirming one’s tax residency status and needed for future SARS and SARB engagement.
8. AIT Application for Externalization of Funds: The application for the clearance is critical for any taxpayers to transfer funds abroad and externalise their portfolio.
9. Conversion to Non-Resident Banking Facilities and SARB Update: As non-residents, individuals need to convert their banking facilities and update records with SARB.
10. Future SA Tax Planning, Clean Break or Retain a Footprint: Emigration involves strategic tax planning for future interactions with South African tax authorities. Individuals may choose a clean break by severing all financial and tax ties with South Africa or opt to retain a financial tax footprint for specific financial activities.
Given the various complexities it is important to seek professional advice from experts across various fields. From detailed asset portfolio planning to residency advisory, tax compliance checks, financial planning and beyond, ensuring that every aspect of your emigration journey is meticulously addressed which is crucial for a successful divorce from SA.
Written by Nicolas Botha, Tax Team Compliance & Processing Manager at Tax Consulting SA