Exit taxes in South Africa

What’s this booklet about?

Although South Africa previously used to tax only South African-source income, this began to change in 1998. At present, the country taxes the worldwide income of its residents. If a South African resident leaves the country, her assets may be deemed disposed for tax purposes and she may need to pay capital gains tax on those assets.1 The capital gains tax on deemed disposition is also known as “exit tax”.

The exit tax can be a serious obstacle for individuals and companies wanting to leave South Africa. Such legal or natural persons may not only need to pay a hefty tax in South Africa, but also may be taxed in their new country of residence on the actual disposal of the assets concerned. Needless to say, double taxation is a problematic issue for individuals and companies.

This article aims to explain in detail how the South African exit tax regime works and how taxpayers can optimize their exit taxes. More particularly, we will first examine the concept of residence (Section 2) as the cessation of residence is the main trigger of the exit tax. Afterwards, we will discuss the South African exit tax regime (Section 3). Next, we will provide recommendations on how to eliminate or reduce the exit tax
(Section 4). Finally, a conclusion is drawn (Section 5).

By reading this book, you will learn:

• 1. INTRODUCTION
• 2. THE CONCEPT OF RESIDENCE
• 2.1 RESIDENCE OF INDIVIDUALS
• 2.2 RESIDENCE OF LEGAL ENTITIES
• 3. THE EXIT TAXATION
• 3.1 BRIEF OVERVIEW
• 3.2 THE RATES OF THE EXIT TAX
• 3.3 THE IMPACT OF DOUBlE TAX TREATIES ON THE EXIT TAXATION 
• 4. RECOMMENDATIONS ON HOW TO ELIMINATE OR REDUCE THE EXIT TAX 
• 4.1 DOUBLE TAX TREATIES 
• 4.2 THE ACTUAL DISPOSITION OFTAXABLE ASSETS BEFORE DEPARTURE 
• 4.3 TRANSFER OF ASSETS BETWEEN SPOUSES 
• 4.4 INVESTING IN TAX EXEMPT ASSETS 
• 4.5 SELLING FOREIGN COMPANIES TO FOREIGN AND UNCONNECTED PERSONS 
• 5. CONCLUSION