Whether pursuing lucrative career development opportunities in the Middle East, utilising a safer environment in Australasia to build their families, or claiming the benefits of European social and healthcare systems, South Africans continue to emigrate in droves.
Curiously, and notwithstanding the various well-documented socio-economic challenges in South Africa, some of these South Africans do elect to return home every year. In such cases, these inbound Saffas may find themselves re-appearing on the radar of the South African Revenue Service (SARS).
Breaking tax residency
Whilst living and working abroad, many expatriates mistakenly believe that they don’t need to file tax returns or declare their foreign-sourced income to SARS. Many expatriates erroneously adopt a ‘head-in-the-sand’ approach, simply neglecting their tax affairs whilst living and working abroad. In contrast, by obtaining formal confirmation that they have become tax non-residents, many conscientious expatriates may lawfully protect their foreign-sourced income from being taxed by SARS.
Depending on their circumstances and how long they intend to reside abroad, expatriates may elect to either cease their tax residency temporarily or permanently. A temporary cessation of tax residency is achieved in terms of the relevant Double Taxation Agreement, while a more long-term cessation is achieved by means of the so-called financial emigration process.
However, where expatriates choose to return to South Africa, it is crucial that they proactively secure expert tax advice regarding tax residency, exchange control and estate planning considerations before touching down.
Repatriation: ‘push’ and ‘pull’ factors
There has been a noteworthy uptick in the trend of expatriates returning to South Africa, with various reasons being cited for repatriation. Some of the chief reasons range from ‘push’ factors such as –
- he steadily increasing cost of living in Europe and North America;
- security concerns surrounding the ongoing conflicts in Gaza and Ukraine;
- lack of familial support structures and cultural misalignment abroad; and
- extreme and adverse weather conditions and events.
Further, certain counterintuitive ‘pull’ factors appear to be attracting some expatriates back to South Africa, which include –
- relatively low cost of living, when compared with foreign countries;
- the desire to be closer to family members and friends, in particular elderly parents;
- capitalising on business opportunities in South Africa and throughout the broader African continent; and
- leveraging international work experience gained in local industries.
Regardless of the reason, expatriates would do well to be cognisant of various crucial compliance considerations, whilst preparing for a repatriation to South Africa.
Tax considerations
From a tax perspective, expatriates need to be aware that they invite the risk of recommencing their status as ‘normal’ resident taxpayers in South Africa. This will have the effect that their worldwide income and assets will become taxable by SARS once more. By enlisting the assistance of specialist tax advisers, scope certainly exists for expatriates to engage in advance tax optimisation.
- Tax residency planning. Determining when a returning expatriate is likely to recommence their tax residency in the context of South Africa’s two robust tax residency tests, being the so-called ‘ordinarily resident’ and ‘physical presence’ tests.
- Estate considerations. The strategic structuring of expatriates’ assets and investments through the creation of suitable trust and estate planning vehicles, to legally avoid donations tax and estate duty in the long run.
- Asset preservation. When an expatriate recommences tax residency, a re-introduction of their worldwide assets into the South African fiscus occurs. Simply put, a ‘reset’ of the base cost of certain ‘qualifying assets’ will occur on the date they recommence their tax residency in South Africa. The assets that are most typically considered include –
- global shares;
- unit trust investments; and
- crypto currency assets.
Banking and exchange control
South Africa’s authorised dealers (South African banks) will categorise expatriates’ local bank accounts according to their tax residency statuses. The South African Reserve Bank (SARB) imposes the obligation on local banks to report on the status of accounts, as well as the cross-border movement of funds.
When expatriates elect to return to South Africa, they are required to align the status of their bank accounts with their tax residency status. Practically, expatriates are required to notify their South African banks of the recommencement of their tax residency, which will enable expatriates to –
- regain access to local credit facilities, such as overdrafts, loan funding, and credit cards;
- re-instate their annual Single Discretionary Allowance, allowing the remittance of up to R1 million abroad from South Africa; and
- comply with reporting obligations required by SARB and imposed on their local South African bank.
Due to the complexities and pitfalls involved with a repatriation, as well as the unique opportunities presented, prudent expatriates choose to partner with experienced expatriate tax advisors. By partnering with a multidisciplinary team of seasoned tax attorneys, chartered accountants and expert trust advisors, returning expatriates can both optimise the structuring of their asset portfolios, and ensure they comply with SARS upon their return to South Africa.
