South African expats could face new exit tax

South Africans who decide that they would like to move overseas may soon find that they will have to pay out more than they were hoping to, as an ‘exit tax’ has been proposed to come into effect from next year. Under existing laws, there are charges already in place for those leaving the country on a permanent basis. However, the likely additional exit tax would take money from the retirement savings of private individuals. “In the Treasury’s latest published Draft Tax Bills, which incorporates the tax proposals made in the 2021 Budget, the amendment proposes to tax retirement fund interests of individuals when they cease South African tax residency. This proposal is the latest amendment directed at taxpayers who intend to leave South African shores permanently,” said Jean Du Toit, a specialist at Tax Consulting South Africa.

Proposed amendment

The draft Taxation Laws Amendment Bill (TLAB) proposes, in addition to the existing exit charge, to tax the value of the interest in a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund. Du Toit says: “It wants to create a similar fiction under a new section in the Act where an individual will be deemed to have withdrawn from their retirement fund on the day before they cease residency.
“However, payment of the tax will be deferred until the amount is actually receivable from the fund.” The tax will be handed down on the value of the interest on the day before the residency is ceased and will be worked using the lump sum tax tables at the time of payment.

Opposition

The draft amendment has faced severe criticism. The charge is being led by The South African Expatriate Petition Group (TPG), which was founded to advance the interests of expats earning income outside of their home country who might become liable under new legislation to pay tax in South Africa. The group focuses on informing expatriates on developments in legislation and provides a forum for expatriates to act as a uniform front to oppose legislation that “might put them at an unfair disadvantage.” The Group, led by Abu Dhabi-based Barry Pretorious, has asked Tax Consulting South Africa to take up their case and provide a legal challenge to the amendments. The draft bill is open for public comment until 28 August.

Expatriate Petition Group

In a letter to a leading South African publication, Fin24, a few years ago, one member wrote: “There is a wide misconception in South Africa that living in a tax free country is financially profitable. To the contrary, not only is the cost of living high in comparison, but is also structured in such a manner to ensure that up to 70% of income earned is injected back into the country’s economy.” They continued: “Many of us cannot find work in SA. However, we still contribute to the economy. “Under current SA tax laws if we were to be taxed, as expats, on our housing allowances/ schooling allowances on SA tax scales, we would be in the high tax brackets. “This [adopted country] is not our home. Our intent is mainly to return to SA. Our accommodation abroad is not our primary residence. It’s a place of doing business.”

South African diaspora

The South African diaspora consists of South African emigrants and their descendants living outside South Africa. The largest concentrations of South African emigrants are to be found in the UK, followed by Australia, the United States, New Zealand and Canada. At the time of the 2001 UK Census, 141,405 South-African born people were living in Britain. In Australia, there were 145,683 South African-born people living in the country, according to its 2011 Census, representing an increase of 78,444 recorded by the 2001 census. The 2000 United States Census showed 68,290 South African-born people.

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