Understand the new rules around citizenship, exchange control and tax residency

The concept of “emigration”, as recognised by the Financial Surveillance Department of the South African Reserve Bank (SARB), has been phased out, with effect 1 March 2021. National Treasury has indicated that the reason for this regulatory change is “to encourage South Africans to keep their ties with the country”.

The phasing out of emigration has created even more confusion around citizenship, exchange control (excon) residency and tax residency and how the changes will affect different individuals and access to funds. Carla Rossouw, tax lead, and Jaya Leibowitz, senior legal adviser, highlight the differences between these three concepts and explain how each may affect your investments.

1. Citizenship
A citizen is a legally recognised national of a state or commonwealth. In South Africa, you can be afforded citizenship in three ways: By birth, through descent, or via naturalisation. Citizenship status gives individuals certain rights and obligations, such as the right to vote, access to social services, and the right to live and work in the country without the need for a permit or visa.

In South Africa, citizenship is a concept that exists independently of tax and excon residency. For example, if your family emigrated to another country when you were a child, you could have retained your South African citizenship, but you will not be a South African tax or excon resident.

As a South African citizen, you do not need to live in the Republic to retain your citizenship status. South Africa also allows its citizens to hold dual citizenship, which means that you can be a South African citizen and a citizen of another country simultaneously.

Can you lose your South African citizenship?
A South African citizen who fails to adhere to certain legal obligations may lose their citizenship. For example, you must apply to the Department of Home Affairs for permission to retain your South African citizenship prior to applying for citizenship of an additional country. Failure to do this may result in you losing your South African citizenship. South African citizens under the age of 18 years are exempt and do not need to apply for dual citizenship, if they acquire the foreign citizenship before they turn 18.

2. Exchange control residency
It is important to remember that the concept of residency for excon purposes is distinct from tax residency, which is discussed in section 3.

South Africa’s excon regulations determine the flow of money in and out of the country. This means that these regulations govern the amount of money you may take out of the country and the circumstances under which you may take money abroad.

Prior to 1 March 2021
The regulations previously created distinctions between the following individuals:

Resident: A person who has taken up permanent residence in South Africa.
Resident temporarily abroad: A resident who has departed from South Africa to a country outside the Common Monetary Area (CMA) (South Africa, Namibia, Lesotho, Eswatini), with no intention of taking up permanent residence in another country. This excludes residents who are abroad on holiday or business travel and includes residents who are living and working abroad.
Emigrant: A South African resident who is leaving or has left South Africa to take up permanent residence in a country outside the CMA.
Non-resident: A person whose normal place of residence is outside the CMA.
An individual or family unit intending to take up permanent residence outside of the CMA could apply to the SARB for financial emigration (or "formal emigration"), which would entitle the individual to take a specified amount of money out of South Africa via an emigrant capital account (also referred to as a rand-blocked account). A resident who followed this process would become an emigrant for excon purposes and would eventually become a non-resident.

Post 1 March 2021
The concept of emigration for excon purposes has now been phased out and the process of controlling an emigrant’s remaining assets via an emigrant capital account has fallen away.

Moving forward, if you leave South Africa to take up permanent residence in another country, you will have to inform the South African Revenue Service (SARS) that you have ceased to be a South African tax resident (see below for more information on tax residency). If you cease to be a South African tax resident, you will have to request a tax compliance status (TCS) for “emigration” from SARS before being permitted to transfer any funds abroad.

However, the SARB and SARS have confirmed that if you submitted an emigration application to an authorised dealer prior to 1 March 2021, you will be able to follow the previous emigration process.

For more information on how much money you are allowed to transfer out of the country when you emigrate, please see “Taking money offshore” in section 3.

Declaring yourself a resident temporarily abroad
Continue reading: https://www.allangray.co.za/latest-insights/personal-investing/understand-the-new-rules-around-citizenship-exchange-control-and-tax-residency/ 

August 18 2021 By Carla Rossouw and Jaya Leibowitz - allangray.co.za