You’ve probably heard by now that formal emigration is out and tax emigration is in. But what does this mean for getting your money out of South Africa? What does it mean for cashing in and withdrawing your retirement annuities and having the money transferred abroad? Essentially, the effect of tax emigration is the same as formal emigration when it comes to accessing your retirement annuity savings, the only thing that has really changed is the process involved and the time frames.
Let’s take a look at what this means for you, as a South African living abroad, and what you need to know about tax emigration before you get started.
Tax emigration
What is tax emigration?
Tax emigration is the process of informing the South African Revenue Service that they should update your tax status from resident to non-resident because you no longer meet the tax residency requirements.
Once your tax resident status changes to non resident you can:
- Stop paying expat tax in South Africa on your foreign employment income
- Access your retirement annuity after you’ve been a non-resident for three years
- Withdraw these savings and transfer the proceeds abroad, less tax and penalties
How does tax emigration differ from formal emigration?
Previously, if you wanted to access your retirement annuity savings and wrap up your finances in South Africa, you would apply to the South African Reserve Bank to have your status changed from resident to non-resident for exchange control purposes. This was the only way to create a free-flow of capital out of the country, but now that formal emigration has been phased out and there is no longer a distinction between how residents and non-residents are treated for exchange control purposes, it is much easier to transfer your money out of South Africa once you’ve cashed in your retirement annuities.
However, the main difference between tax emigration and formal emigration for the purposes of early withdrawal of retirement annuity funds boils down to a time difference. Whereas formal emigration once provided immediate access to retirement annuity savings, tax emigration now requires that you maintain your non-resident status for at least three years before you’ll be allowed to touch your retirement annuity.
What is tax residency?
Tax residency determines where your tax obligations lie. In South Africa’s residence-based tax system, you don’t have to live within the borders of the Republic to be considered a tax resident, and thus liable to pay tax. Even if you’re living overseas and earning (and paying tax on) an income in a foreign country if you meet the requirements for tax residency in South Africa you will be expected to pay tax on your worldwide income, where it exceeds the R1.25 million exemption threshold.
What is exchange control residency?
Before the 2021 tax law amendments, there was a distinction drawn between residents and non-residents for the purposes of applying exchange control regulations to the movement of capital outside of South Africa. As mentioned above, this has changed. Now residents and non-residents are subject to the same rules and tax verification process when it comes to moving money beyond the Republic’s borders.
To gain access to your retirement annuity after 1 March 2021 you will need to –
- Tax emigrate by notifying the South African Revenue Service that you are no longer tax resident.
- Be able to demonstrate to your fund provider that you have maintained tax residency in another country for no less than 3 consecutive years.
Please note: Before your fund provider can begin the early withdrawal process, they will also need to obtain authorisation from the South African Revenue Service in the form of a tax directive, and they will only issue this if your tax status has been correctly updated to non-resident.
How much money can you move out of South Africa?
South Africans can make use of two allowances for transferring money offshore:
- The R1 million Single Discretionary Allowance (SDA) which does not require tax clearance.
- The R10 million Foreign Investment / Foreign Capital Allowance (FIA), which requires a tax compliance status application with the South African Revenue Service.
The South African Reserve Bank has implemented changes to these allowances that impact South Africans who become expats. While still entitled to use the FIA, South Africans will no longer be permitted to use the SDA the year after their tax emigration is concluded.
What does this mean for getting your retirement annuity funds out of South Africa?
Given that you will be required to wait three years after becoming a tax non-resident, when it comes to moving your money out of South Africa, you won’t be able to use the SDA. Instead, you’ll need tax clearance from the South African Revenue Service and you’ll need to use the FIA in order to transfer your funds offshore.
Read: How to move your money out of SA once you’ve completed tax emigration
FinGlobal: tax emigration specialists
If you’re looking for a trusted cross-border financial services specialist that can handle the relocation of your funds, as well as every aspect of your tax emigration from start to finish, you’ve come to the right place.
Leave us your contact details and we’ll be in touch to start your free, confidential, no-obligation SARS tax residency assessment.