We all know that South Africa delivers a final kick in the pants to tax residents who cease to be tax resident in South Africa (and will thus become tax resident in another country), by levying an “exit tax”.  So essentially the emigrant is deemed to have disposed of all his worldwide assets (barring one or two exceptions) at market value the day before he emigrates, and  may thus have a cash tax liability on this deemed gain!  Definitely not a nice parting shot to contend with, and unsurprisingly this is something that many South Africans complain about.  However, you may be surprised to know that such exit charges are actually not that uncommon.

There is actually a growing list of countries around the globe that impose a type of “exit tax”, including:

  • Australia
  • Canada
  • Denmark
  • France
  • Germany
  • Norway
  • Singapore
  • Spain
  • United States

Finland and Russia are also getting in on the game and currently implementing an exit tax.

So how is this relevant?  Well, as a result of the changing business landscape post-pandemic, employers around the world are (slowly but surely) getting comfortable with employees working remotely. Similarly, many individuals are considering emigrating to different countries due to this new-found flexibility when it comes to work. As a result of this increasingly mobile and flexible employment landscape, we can surely expect more countries to start considering an exit tax to “dissuade” individuals from leaving for so-called “greener” pastures.

Is exit tax standard across the globe?

Unfortunately, no – different countries have their own thresholds and exemptions when it comes to exit tax. Similarly, the rate of exit tax also fluctuates across the globe.

It’s important to pay close attention to where and when the exit tax occurs, as each country will apply a unique approach that may be relatively more lenient or stringent. For instance, South Africa levies an exit tax regardless of the time that the individual has been a tax resident in South Africa, whilst Finland is proposing an exit tax of 30/34% on all Finnish tax residents who have stayed in Finland for at least four years in the last 10 years. On the other hand, France only imposes an exit tax on long-term residents.

Another important aspect to note is that there are special compliance obligations that arise in South Africa when an individual ceases to be resident in South Africa. Essentially a person’s tax year ends on the day that he ceases to be a resident and he is required to file a tax return for that period. Inter alia the deemed capital gain must be disclosed in this tax return, and the South African Revenue Services typically also requires relevant supporting documentation and/or declarations to be submitted along with the return. Non-compliance may result in delays in remitting funds offshore.

In broad terms, retirement fund saving shouldn’t be subject to an exit charge, although we recommend that this be confirmed for each and every case as each fund will have its own rules. This is particularly important to note as SARS has recently tried to impose an exit charge on all such interests.

In closing:

Before you decide to leave South Africa for greener pastures, make sure that you are clued up on any potential exit tax that could also apply in your new home country and when that exit tax could be triggered If you really want to start over on a clean slate and cease tax residency in a particular country it is vital to check whether you will be affected by exit tax (and to what degree). Being unprepared could have dire financial consequences…

For more information on whether you could be affected by exit tax please contact us.

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How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.