Financial Emigration

Emigration as an Investor Shouldn't be Taxing

From the moment of our birth, a government lays claim to us as its own. They meticulously record our births, provide care during our formative years, and anticipate a lifelong contribution to their coffers in the form of taxes. Historically, a sense of intergenerational allegiance to one’s country and flag offered a measure of security. However, the landscape has evolved in our globalized world, where an increasing number of individuals contemplate altering their tax affiliations.

It is imperative to delve into the realm of financial emigration for the purpose of safeguarding one’s wealth. This entails the strategic cessation of tax obligations to one country and the redirection of one’s taxable assets to another. Additionally, it involves the intricate process of pension transfers and navigating the intricacies of Reserve Bank restrictions.

Tax Emigration

Since the inception of the Magna Carta and the era when the British Empire held sway as one of the largest empires in modern history, it is unsurprising that many nations worldwide have adopted the British methodology of imposing taxes on their citizens.

Emigration often emerges as the sole avenue for individuals to liberate themselves from the obligation of paying taxes to their country of residence. Most nations have established double-taxation treaties, exempting citizens who choose to emigrate from ongoing taxation. Yet, exceptions do exist, with the United States representing a notable case. However, all hope is not lost, for with meticulous planning, the Internal Revenue Service (IRS) offers ample opportunities for citizens who have emigrated to either pay minimal or no taxes to the USA.

Moreover, countries such as the United Kingdom, South Africa, Ireland, various European Union member states, and numerous others offer tax emigration solutions.

The Hull Rule

In the early 21st century, a consensus emerged among the world’s leading nations regarding the appropriate level of protection for foreign investments. These nations concurred that investors deserved the safeguarding of their property under international law. Any act of a host nation expropriating a foreign investor’s assets required just and swift compensation. This perspective should come as no surprise.

The nations responsible for formulating this rule were predominantly affluent European countries whose citizens engaged in foreign investments while facing relatively limited inward foreign direct investment. Nevertheless, customary international law does not scrutinize the motivations behind a country’s actions but focuses on practices and a sense of legal obligation. Irrespective of the intentions of these nations, it is reasonable to assert that, at that time, the prompt and adequate standard had become customary international law.

Today, the Hull formula serves to protect both investors and governments when investors opt for emigration. It ensures the seamless transfer of all assets from a prior jurisdiction to the new tax residence whenever such a move is deemed advantageous for the investor.

Helpful tips

Our team aims to answer all questions with accurate, up-to-date information. While every case is unique we can answer some of the questions on Financial Emigration here:

What is Tax Emigration?

It is the process by which you terminate your obligation to pay tax on your worldwide income by informing your tax authority that you no longer meet the requirements for tax residence status. For income tax purposes, your tax status is then updated from ‘resident’ to ‘non-resident’.

To complete the process, there may be Capital Gains taxes that will need to be settled.

Do I lose my Citizenship?

A person does not lose their citizenship when emigrating. You simply need to live overseas for a minimum period of time prior to declaring yourself as a non-resident for tax purposes. Planning to move assets and pensions across international borders can begin in advance of your proposed emigration.

Am I subject to Capital Controls?

Once you have financially emigrated, in most countries you are no longer subject to capital exchange controls from the Reserve Bank.

As an example, we can look at South Africa:

Where allowances currently govern how much capital a South African can transfer out of the country on an annual basis. The two allowances that a South African resident has access to include:

  • A Standard Discretionary allowance of R1m
  • A Foreign Investment Allowance of R10m (a personal tax clearance for allowance purposes is required for this).

There is also the option of a “special allowance” where you can request to transfer amounts above your annual allowances out of South Africa. This will be considered by SARS based on the merit of the application.

On Financial Emigration a South African Citizen is no longer subject to these controls.

Can I access my Pension when I emigrate?

Most countries provide schemes that allow pension annuities to be cashed in and moved overseas. There may be limitations in place to protect pension holders from unscrupulous off-shore schemes. However, with the correct guidance moving a pension off-shore is possible and can bring significant benefits. 

Unfortunately, fees can be incurred by pension fund managers, so it would be advisable to investigate your pension provider’s penalties before emigrating your pension.

Do I need to state where I am emigrating to?

Your current tax authorities will be keen to know where you will be emigrating to for tax purposes. It is also helpful to demonstrate you are registered to pay tax in another jurisdiction. Even if there is no double taxation agreement in place, it may prevent an unnecessary or unwarranted demand for tax.

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