Emigration as an Investor Shouldn't be Taxing
The moment we’re born, a Government claims us as their own. They record our birth, nurture us during our early years and expect lifelong income from our efforts in the form of taxes. Intergenerational allegiance to the country and flag provided a level of security in the past. Globalisation has changed how we view the world today as more people change their tax allegiances.
It is important to explore Finacial emigration for wealth protection, when to stop paying taxes to one country and divert your taxable wealth to another, how to transfer pensions and deal with Reserve Bank Restrictions.
Since the Magna Carta was signed first and the British operated one of the largest empires in modern history, it stands to reason that many countries across the globe would adopt the British methods of applying taxes on their subjects.
Emigration is often the only way a person can be free of paying taxes to the country they reside in. Most countries have double-taxation treaties and will not continue taxing citizens who have elected to emigrate overseas. As with every rule, there are exceptions, with the USA being the largest. All is not lost; with the correct planning, the IRS provides ample opportunities to pay no tax or low taxes to the USA once a citizen has emigrated.
That said, countries including the U.K., South Africa, Ireland and those across the E.U., and many more provide tax emigration solutions.
The Hull Rule
Early in this century, there was a broad consensus among the world’s principal nations regarding the appropriate level of protection for foreign investment. These countries believed that investors were entitled to have their property protected by international law and that taking an alien’s property by a host nation required compensation that was “prompt and adequate.” This view should not surprise us.
The nations forming this rule were, by and large, wealthy European countries whose nationals were engaged in investment abroad but faced relatively little inward foreign direct investment. Nevertheless, customary international law does not consider the intentions behind countries’ behaviour, merely the practice and sense of legal obligation. Regardless of these countries’ motivations, it is fair to say that the prompt and adequate standard was customary international law at the time.
Today, the Hull formula protects investors and governments where investors emigrate by ensuring all assets can be transferred from a previous jurisdiction to the new tax residence if appropriate to the investor.
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:
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.
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.
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.
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.
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.