Key considerations, including the treatment of foreign assets, exchange control
requirements and the potential tax consequences of becoming a South African
resident.
Following years of South Africans moving abroad, a noticeable shift is taking place as
many return home and others choose South Africa as their home for the first time.
South Africa is an attractive place to live, retire or spend part of the year. In this
article, we consider the fiscal implications of a move to South Africa for individuals
with foreign assets and foreign investment structures.
Does a move to South Africa result in a change of tax residence status?
South Africa has a “residence” basis of taxation. South African tax residence is not
determined only by citizenship, immigration status or the purchase of immovable
property. A natural person becomes tax resident in South Africa under our domestic
laws if they are either “ordinarily resident” in South Africa or not “ordinarily resident”
but meet the physical presence test, unless they are treaty resident in another
jurisdiction which is party to a double tax treaty with South Africa.
In broad terms, a person is ordinarily resident in South Africa if South Africa is their
real or settled home, the place to which they would naturally return after temporary
periods of absence. The ordinary residence test is a factual enquiry that considers
numerous factors to objectively determine whether a person has strong ties to South
Africa such that it is regarded as their most settled place of residence.
A person who is not ordinarily resident may still become tax resident under the
physical presence test if they spend sufficient time in South Africa over a five-year
period. There is a misconception that a person who moves to South Africa can only
become tax resident after a five-year period. A person can become “ordinarily
resident” in South Africa from their date of arrival if there are sufficient ties indicating
they intend to make South Africa their “new home”. Only if this is inconclusive (i.e.
they retain strong ties in another jurisdiction) will the physical presence test become
relevant.
In either case, the provisions of a tax treaty should be considered to determine
whether a person is regarded as treaty resident in another country. If so, treaty
residence will trump, and they will not become tax resident in South Africa even if
they meet one of the local tests. In practice, it is unlikely that a person will meet the
ordinary residence test yet be treaty resident in another jurisdiction.
Impact of South African tax residence
Upon becoming tax resident in South Africa, the new resident becomes subject to
worldwide tax, but to ensure that worldwide tax is applied only from the date of
residence, new residents receive a tax base for their worldwide assets equal to
market value on that date. It follows that only the post-residence growth in these
assets is exposed to South African tax. For this reason, it is important to have all
assets valued on becoming tax resident.
Conversely, when South African residence ceases, the residents are deemed to
dispose of their worldwide assets at market value at the time, giving rise to an exit
charge on the appreciation of their worldwide assets. Unless the jurisdiction they are
moving to allows a similar step-up in base, the same amount may be taxed again by
another jurisdiction upon their actual disposal.
Excluded from these rules to step-up base upon becoming tax resident and the exit
charge upon cessation of residence are assets such as South African fixed property
which remain within the South African tax net irrespective of tax residence.
The tax implications of a move to South Africa can extend to the tax position of any
foreign companies, trusts, foundations or other structures in which new residents
hold interests. Any involvement in the management of foreign entities from South
Africa may draw those foreign entities into the South African tax net.
In addition, South Africa has a variety of tax rules to attribute income or gains arising
in foreign structures to South African tax-residents. Amounts arising in a controlled
foreign company (essentially a company in which South African residents hold more
than 50% of the participation rights) are generally attributed to the South African
shareholders in proportion to their shareholding. Where the foreign company is not
passive or is subject to tax which is comparable to South African taxes, these rules
normally do not apply.
Another set of attribution rules can apply when South African residents enter into
transactions which benefit non-residents at the expense of the South African
resident, for example a donation or an interest-free loan to a non-resident. In such
cases, the South African resident could be subject to South African tax on amounts
received by the foreign resident as a result of the donation or the benefit of not
paying interest.
Cross-border loans and other transactions with connected nonresidents need to be
reviewed, to determine whether they comply with arm’s-length terms to avoid the
application of the onerous South African transfer pricing provisions.
All is not bad news, though. Moving to South Africa also holds opportunities to plan
foreign asset holding prior to arriving in South Africa. Foreign structures funded with
proper planning before South African tax residence commences can be a tax-efficient
way of investing.
Income and gains derived by South African tax residents
South African tax residents are, in principle, taxed on worldwide income and capital
gains, subject to any relief in terms of applicable tax treaties or rebates for foreign
tax paid. This means that the South African tax implications of foreign-source
income, pension payouts, trust distributions, and gains on foreign investments should
all be considered.
Without attempting to be comprehensive, we discuss a couple of typical foreign
investment streams derived by foreigners moving, or ex-South Africans returning, to
South Africa.
Foreign pensions
In terms of many of South Africa’s tax treaties, South Africa is allocated exclusive
taxing rights in relation to pension payments received by South African tax residents.
However, South Africa exempts foreign pensions derived as a result of past
employment outside South Africa. In these cases, the tax efficiency of retirement in
South Africa is obvious.
Foreign dividends
Generally, South Africa will levy tax at a maximum rate of 20% on foreign dividends,
subject to credits for foreign taxes on these dividends. Tax treaties may limit the
foreign tax which can be levied (and thus credited in South Africa).
Foreign dividends on equity interests of 10% or more are likely to qualify for the
participation exemption on foreign dividends.
Foreign interest
South Africa taxes foreign interest of residents at maximum income tax rates, subject
to tax credits for foreign taxes levied.
Foreign capital gains
South African tax residents who are natural persons are subject to capital gains tax
at a maximum rate of 18% on any capital gains derived from the disposal of their
worldwide assets, subject to tax credits for foreign taxes payable. Gains are
determined with reference to the stepped-up tax base for assets on becoming tax
resident in South Africa, as explained above.
The disposal of substantial foreign equity interests (10% or more) held for 18 months
or longer can qualify for the foreign capital gains participation exemption, in which
case no South African tax will be payable.
Foreign rental income
Generally, tax treaties allocate primary taxing rights to the country where the rental-
earning property is situated. South Africa would, however, also tax and give a credit
for the foreign taxes. In countries with generous tax thresholds for rental income, it
often is the case that the South African tax exceeds the foreign tax on the rental
income.
Foreign funding from discretionary family structures
South Africa has complex rules governing the taxation of awards to South African
beneficiaries of foreign family structures. To determine the tax, a South African
exercise is required to categorise the retained funds in the structure in accordance
with South African tax principles. Awards must be allocated to a specific category of
such retained funds. Although the process to categorise the retained funds could be
onerous, the result is often that tax efficient funding can be made from foreign
structures to South African tax resident beneficiaries. Planning before arrival in
South Africa is often critical to achieve the tax efficiency in this regard.
Transfer of wealth during lifetime or at death
Donations tax and estate duty are wealth taxes levied under South African tax
legislation. Donations/gift tax is levied at 20% – 25% on donations made by tax
residents. Estate duty is raised at similar rates upon the death of a person who is
ordinarily resident in South Africa at the date of death.
Assets forming part of investment structures may be included in a resident’s estate if
the deceased was competent to dispose of them immediately before death. This rule
is surprisingly wide and careful consideration should be given to a resident’s powers
over assets in structures, such as powers typically reserved for settlors or protectors,
in order to avoid unexpected onerous estate duty consequences in South Africa.
Donations between spouses are generally exempt. However, following a recent
change to South African tax legislation, donations to a non-resident spouse no longer
qualify for the exemption. A similar estate duty spousal exemption applies,
irrespective of whether the surviving spouse is tax resident in South Africa.
Exemptions from the donations tax and estate duty may also apply to foreign assets
acquired before first becoming “ordinarily resident” and those received by inheritance
or donation from non-residents, provided they are retained offshore. If an asset is
subject to both estate duty and foreign death duty, a local rebate or relief in terms of
an estate duty treaty is likely to apply to avoid double taxation.
Exchange control
Tax residence and exchange control residence are distinct but closely connected and
often considered together. If an individual becomes exchange control resident,
exchange control rules may affect the movement of funds into and out of South
Africa. There will also be disclosure obligations upon becoming exchange control
resident, particularly where obtaining residence results in a loop structure.
Accordingly, exchange control advice should be sought as part of broader relocation
planning.
Plan before you become resident
The tax implications of becoming South African tax resident are manageable and, in
certain instances, allow for tax efficiency, but should be considered early. Proactive
advice can help to avoid unexpected tax leakage, preserve flexibility, and ensure that
offshore wealth structures remain appropriate once South African tax residence
becomes relevant.
First published on 17 August 2026. Authors Doelie Lessing, Director and Head of
Tax and Private Wealth, Luke Magerman, Senior Associate and Mike Searle,
Candidate Attorney at LEX Africa’s South African member, Werksmans Attorneys –
www.werksmans.com.
