Let us look-into these:

Citizenship

You can be a citizen of one or more countries (some countries allow dual citizenship). Citizenship can be obtained by birth, decent or naturalisation. Having citizenship of a country will allow you to work in that country without obtaining a visa, the right to vote and depending on the country, the right to social services. Citizenship will be obtained through the Department of Home Affairs in South Africa (“SA”).

The term citizenship is independent of your tax residency.

Tax Resident

The onus is on the taxpayer to prove to the South African Revenue Services “SARS” what his/her tax residency status is. The physical presence test or ordinarily resident test will apply.

The Ordinarily residence test: The Income Tax Act does not define the term “ordinarily resident”. The courts have, however, considered its meaning and have established principles to be applied in determining the place in which a natural person is ordinarily resident.

Physical presence test: These requirements are that the person must be physically present in SA for a period or periods exceeding –

• 91 days in aggregate during the year of assessment under consideration;
• 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and
• 915 days in aggregate during the five preceding years of assessment.

A natural person, who is resident by virtue of the physical presence test, ceases to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days. Residence will cease from the day that the person left SA.

SA tax residents need to declare their world-wide income on their tax returns submitted to SARS.

Foreign investment tax clearance certificate

The first important criteria before any tax clearance can be applied for, will be that the individual needs to be tax compliant.

An individual can externalise R1,000,000.00 (one million Rand) per calendar year, out of SA. This can be done without a foreign investment tax clearance certificate (“FITCC”).

If you want to externalise between R1,000,000.00 but not more than R10,000,000.00, you can apply for a FITCC. To apply for this tax clearance, information and documents will be needed to accompany the application. The required documentation and information will depend on the source of funds and how you intend to invest the funds abroad. The information and documents needed will include but will not be limited to:

• The date you want to transfer the money (usually upon the issuing of the FITCC);
• Expected interest rate / return to be earned on the money to be invested;
• The country in which the money will be invested;
• The source of funds. Examples could be distribution/loan/dividends from a trust/company, etc;
• Three years’ statement of assets and liabilities for individual;
• Three years’ statement of assets and liabilities for the entity. If it is a distribution/loan/dividends from an entity;
  • Bank statements for trust/company showing where the money came from (where you need to liquidate investments, the money must reflect on your bank statement);

• Bank statements showing that the funds were transferred to your bank account:
• Corroborative evidence supporting the source of funds, depending on the nature thereof; and
• If you use a tax practitioner, a signed Special Power of Attorney.

You can apply for a FITCC for an amount that is more than R10,000,000.00. Such an application will be subject to a more in-depth review by SARS. SARS can request substantially more information, and this application will also take longer to approve.

A FITCC will be valid for a period of 12 months from the date of issue, with a further requirement being that your tax affairs are in order on the date of externalisation of the funds.

Emigration tax clearance certificate

An emigration tax clearance certificate (“ETCC”) will become applicable and can be applied for where you have left SA and became a permanent resident in another country. A ETCC will also allow you to cash in and externalise retirement funds before your retirement date.

Very similar information as listed above for the FITCC will be needed, with some additional information:

• Proof of your residence in another country;
• Date you left SA;
• Current value and documentary proof of all policies and retirement funds that you want to cash in;
• Intention of whether or not you intend to become a SA tax resident again; and
• List of SA assets and the income that will still be earned in the future form these assets.

The terms explained in this article will have an impact on your tax and tax position.

References:

1. South Africa Revenue Services
2. Department of Home Affairs
3. Allan Gray – Gray Issue, Issue 245 dated 3 August 2021