Financial emigration to be phased out in March 2021

This article was originally published on The South African

The National Treasury and SARS presented the Draft Taxation Laws Amendment Bill (TLAB) to the Standing committee on Finance in October, providing some clarity on the proposed changes announced in July. Here’s what you need to know about how financial emigration will be affected. 

Financial emigration out, tax emigration in

Currently, South Africans under the retirement age of 55 can only access and extract their retirement annuities by applying to the South African Reserve Bank (SARB) when they formally (financially) emigrate.  Although this does not directly change your tax status with SARS, it can be used as an indicator of changing your intention from that of being a tax resident to not being a tax resident in South Africa.  This enables taxpayers to encash and transfer their retirement annuities out of the country before the annuities mature.

As part of a slew of amendments made to the Income Tax Act (no. 58 of 1962), the government is phasing out the concept of “formal/financial emigration” for exchange control purposes. Instead, tax rules will be updated to include new requirements before emigrants can transfer a retirement annuity, provident fund, or pension “lump sum” out of the country. 

If you would like help with withdrawing and transferring your South African retirement annuities or other retirement savings, or assistance with tax emigration, you can complete our financial emigration assessment questionnaire and a consultant will contact you.  

FOUR DIFFERENT SCENARIOS

If you have an RA that you’d like to encash and are wondering how these new rules affect you and what you should do, Sable International has identified four scenarios which we believe affect most South Africans:

1. You are only leaving South Africa after March 2021 – You have no option other than to tax emigrate and wait the required period, prove yourself three years non-tax resident and then only encash your RA.
2. You are leaving South Africa between now and the end of February 2021 – Realistically you might be out of time to process your financial emigration (which you can only start once you have left SA) before the change. The closer your departure date is to the end of February 2021, the less likely it is to get it processed in time. The rules will allow for individuals who have submitted their applications to SARB to encash policies post-March 2021 up until February 2022 using the old financial emigration process. However, it’s important to bear in mind that there is a process to get your application submitted to the SARB and this involves completion of the MP336, submitting relevant documents and obtaining tax clearance from SARS, which is the unknown variable as this can take at least 21 days, assuming your affairs are in order.
3. You left South Africa within the past three years – Depending on how urgently you need your RA funds, the same applies as above. The longer you have been out of the country, the more sense it might make to wait for new rules to be implemented and proceed with your tax emigration process back-dating to when you became a non-tax resident in SA. This process might also prove to be simpler and a less costly way to encash your RA.
4. You left South Africa more than three years ago – Post-March 2021, when you can prove non-tax residence, it should be a lot simpler (and less costly than financial emigration) to encash you RA.

Tax emigration will become the requirement and you will need to speak to a qualified tax practitioner in SA to assist you with this process and then you may also need assistance with the encashment of your policy and opening of a bank account in South Africa to receive the proceeds and transfer them overseas. Sable International will be here to help.