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October 2015: South African retirement funding: changes to the way certain offshore jurisdictions will tax you

By September 28, 2015October 6th, 2023Newsletter

October 2015: South African retirement funding: changes to the way certain offshore jurisdictions will tax you

September 28, 2015

Many South Africans who have relocated abroad test the international financial waters before making any unnecessary decisions about their money. Others simply cannot contemplate another big change – for no matter how you consider finances; too many uncertainties abound. The slightest wrong decision could have a dire impact on your nest egg, and if you’ve re-located from South Africa you’re dealing with enough uncertainty.

At least, back home, you are sure of death, taxes, and load shedding. Well, we’ll give you death and load shedding. But when it comes to taxes, unfortunately, you can no longer be so sure. In fact, it may just be the best time to tackle the taxation on your pension fund – lest you lose out. And we’re not talking about petty cash here – no, you could stand to lose thousands of rand on your pension as a result of tax if you choose the annuity route instead of transferring the lump sum. Unfortunately this potential loss needs no action or decision on your part – it simply requires your inaction.

The tax man could come knocking twice

Fact: SARS will tax South African retirement income, at source. Until very recently this wasn’t an issue because you possibly received a tax credit in your new country of residence and as a result would not be taxed twice. However with governments around the world looking at ways to generate additional revenue this has now changed in many countries and is busy changing in others – the net result means you could be taxed twice – once in South Africa and once by the collector of revenue in the country where you now live.

This approach has already been implemented in New Zealand, the United Kingdom, Australia and Canada.

This is bad news, to say the least! But the situation is certainly not beyond your control. By going through a process with SARS each year you can be exempt from tax in South Africa.

Plan B

Of course the alternative to the exemption route is to simply convert your retirement annuity, preservation fund or pension to cash now, and transfer the full capital amount to your new home country, i.e. don’t wait to receive your monthly annuity payment.

You will still pay tax in South Africa on withdrawal, however you will most likely avoid being taxed twice unless you leave the transfer too long and end up with an additional liability locally.

To help you make the right decisions about your retirement investments talk to One of our financial consultants will complete an assessment of your situation, explain the options available to you and the respective processes. In short, you’ll be in a position to make fully informed decisions in line with your financial objectives.

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