When South Africans consider relocating overseas, two terms often come into play: financial emigration and physical emigration. While it may sound similar, they refer to distinct processes with different implications. Understanding these differences in deciding which option is the right one for you, is crucial for citizens planning to leave South Africa.
Stats SA said in its first Migration Profile Report for South Africa published in March 2024, a total of 501,600 South African citizens were residing abroad in 2000. By 2020 this number increased to 915,000.
In 2000 and in 2020 Europe was the dominant expat region for South African citizens, constituting 39% of the total expatriate population.
Physical Emigration
Physical emigration refers to the act of leaving South Africa to reside in another country. This move is typically accompanied by changes in daily life, work, and social interactions.
Key aspects include:
- Residency change: Moving to a new country often means acquiring a work or residence permit, or even citizenship in that country. This involves packing your bags, boarding a plane, and traveling to your new country of residence.
- Tax Residency: Although you may physically leave South Africa, you may still be considered a tax resident unless you formally cease your tax residency. (Remember, South African tax residents are, subject to certain exclusions, taxed in South Africa on their worldwide income, irrespective of where their income was earned.)
- Lifestyle shift: Physical emigration usually results in changes to employment, education, healthcare arrangements, and social life in the new country.
Financial Emigration
Financial emigration, on the other hand, is a formal process involving the South African Reserve Bank (SARB) and the South African Revenue Service (SARS). It entails changing your status to a non-resident for exchange control purposes and ceasing tax residency for tax purposes.
Key elements include:
- Tax Residency Cessation: Financial emigration signifies that you are no longer a tax resident in South Africa. (In South Africa non-residents are taxed only on their income from a South African source.) This requires proving to SARS that you are ordinarily not resident in South Africa and that your primary residence is now abroad with a permanent intention to remain there.
- Capital Gains Tax: A deemed disposal (‘exit tax’) is triggered as of the day before you cease tax residency, meaning you may be liable for capital gains tax on qualifying worldwide assets, excluding immovable property in South Africa, cash, and retirement vehicles.
- Exchange Control Implications: Financial emigration allows you to transfer certain South African assets abroad, such as early withdrawal of retirement funds, which may not be accessible otherwise.
It must be noted that the process of financial emigration is not applied automatically upon physically leaving South Africa, regardless of how long you remain abroad. The due legal processes must be diligently followed to acquire the relevant approvals and attain proof of non-tax residency status from SARS.
Key Differences
| Aspect |
Physical Emigration |
Financial Emigration |
| Definition |
Physically relocating to another country. |
Formal process to cease tax and exchange residency. |
| Involves SARS/SARB |
No, unless tied to a tax status change. |
Yes, formalised with SARS and SARB. |
| Asset Transfers |
Limited by exchange control regulations. |
Provides privileges such as early withdrawal of retirement funds and approval to transfer proceeds and other assets abroad. |
| Tax Implications |
You may still be taxed on your worldwide earnings and assets as a South African resident. |
Ends South African tax residency and worldwide tax obligations. |
| Lifestyle Impact |
Changes in daily life, work, and social interactions. |
Administrative and financial adjustments. |
Deciding Which Option is Right for You
Choosing between physical and financial emigration depends on your circumstances, goals, and intentions. Physical emigration is necessary if you plan to temporarily live abroad, while financial emigration is essential for managing tax and financial obligations when leaving South Africa permanently.
Where the move is intended to be permanent, financial emigration is always recommended to cease tax residency and remove South Africa’s worldwide tax obligations, safeguarding your earnings and assets abroad from SARS’ tax net.
Final Thoughts
Both physical and financial emigration are significant decisions that require careful planning. Consulting with experts in expatriate tax, legal, and financial matters will help ensure a smooth transition and compliance with South African regulations.
Whether your journey involves new opportunities abroad or securing your financial future, understanding the distinctions between these processes is the first step towards success and compliance.
