Tax Residency and Financial Emigration: Everyone is an Expert

Financial Emigration Ceases Tax and Exchange Control Residency

The process of “Financial Emigration” terminates your tax residency status with the South African Revenue Service (“SARS”) as well as your status as exchange control resident with the South African Reserve Bank (“SARB”). The SARS process includes a verification or “audit” procedure, as financial emigration is not something that is casually agreed to by SARS, because they are prohibited from taxing the non-resident on worldwide income. The upshot is also that when you complete your South African or offshore bank’s CRS and/or FACTA forms, you can formally note yourself as non-resident for South African tax purposes. The SARS process is duly evidenced by an “Emigration Tax Clearance Certificate”, which is part of South African Administrative Law and comes with a guarantee as per section 33 of our Constitution.

Does the Emigration Tax Clearance Certificate Guarantee Legal Defence?

This is a double-edged sword –

1. We give our clients the guarantee of tax non-residency on a correctly completed financial emigration process. The process we follow is a matter of law, supported by case law from both a tax and administrative law perspective – thus, our confidence in providing clients with this certainty.
2. However, when the financial emigration process is not correctly administered, there is no protection and tax residency is not correctly terminated. There is no prescription under administrative law if due process was not followed. We are increasingly encountering SARS auditors who look at the substance of applications and the only path of prudence is to have an “audit file” prepared in case of future SARS investigation. Our approach is that there is no time to get your ducks in a row once an audit commences, so prepare in advance.

Is Financial Emigration the Only Option?

Of course not, there are many options. Our views on the options and way forward for the expatriate community have been recently noted by Jerry Botha of Tax Consulting SA.

So Many Expatriate Tax Experts, Suddenly

There is a definite amusement factor to the flurry of experts now commenting hereon, in the areas of international tax. None of them were present in Parliament in 2017 arguing against the tax law change, or attended the National Treasury and SARS consultative sessions; yet now are very vocal as the implementation of the amended law approaches. Noting this, how do you choose a provider to assist with financial emigration or with expert guidance –

1. Make sure they are registered Tax Practitioners, at the very least. Unbelievably, there are many advisors with vehement opinions but they are not even registered with SARS, let alone competent in this complex area of law. They “operate” their businesses working on your SARS e-filing profile while often “outsourcing” the tax component to someone else.
2. Admitted Attorneys – Tax and any SARS matter are adjudicated in law, thus when things go awry, Court is almost unavoidable. Therefore, having been to Tax Court or the High Court really should be a pre-requisite in dealing with matters of a certain level of complexity. Other skill sets useful are a CA(SA) / Registered Accountant, CPF® with own FSB license and passport/work permit experts. Proper financial emigration requires a holistic approach.
3. We see many expatriate client matters in utter disarray where they have used a “one-man-band” who has since disappeared. Also be careful that you deal with the real advisor, as we are increasingly seeing “marketing” agents who just stir to farm for clients, which often takes the shape of criticism and fear mongering.
4. Where the rubber hits the road – How many Financial Emigrations has the provider actually done and with how many cases are they currently busy? Experience wins.

We strongly recommend that proper due diligence is done when using a provider for something as important as Tax Residency. Secure a provider with a strong Tax and Legal compliment.