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When it comes to exchange control and tax law, things can get confusing quickly. Especially when these laws change. That’s why we thought it would be useful to take a quick look at some of the misunderstandings, misapprehensions and myths that surround your retirement savings, and establish exactly what you can do as a South African living abroad, if you want to cash in your retirement nest egg.

Myth #1: You can’t touch your retirement savings until the age of 55, without penalty

Most retirement annuity saving products strongly discourage you from touching your savings by putting heavy withdrawal penalties in place. South Africans that made the decision to move and live abroad are often under the misapprehension that they could only access their funds from abroad, once they’d blown out 55 candles on their birthday cake.

Thanks to some smart changes in tax law, this is no longer the case and it is now possible to access your retirement annuity proceeds even before the age of 55 but (and here’s the catch) you have to complete the process of financial emigration – which is also known as formal emigration – in order to do so.

#Myth 2: But financial emigration sounds like I have to choose not to be a South African citizen any longer?

Financial emigration, even though it’s also called ‘formal emigration’ does not mean you have to give up any of your South African birthrights. You’ll still keep your same passport, you can still call yourself South African, and you are welcome home any time. The only thing that changes is your status, from ‘resident’ to ‘non-resident’, and this has an effect on the way you’re seen by the South African Reserve Bank (SARB) and Revenue Services (SARS) for exchange control purposes.

In order to complete the process of financial emigration and achieve retirement annuity surrender, you need to make sure that all your ducks are in a row, tax-wise and you’ll need a tax clearance certificate from SARS.

#Myth 3: But I’ve been living abroad, which means I don’t have to file a tax return in South Africa

Even though you might have emigrated to another country, as long as you are a South African citizen, who has not yet de-registered your tax record at SARS , you’re liable to file your annual return with the taxman back home.

Turning your retirement annuity into cash could involve a potentially large sum of money. Where there’s money, both SARS and SARB will have a say, especially when that money is leaving South African shores. In addition to SARS and SARB getting involved in the process, you’ll also need to rope in your insurers and a commercial bank in accordance with South Africa’s exchange control rules.

Myth 4: Financial emigration is something I can handle on my own without expert assistance

There are many things that you can do by yourself online, it’s true. Financial emigration is probably not one of them. Each financial institution has their own specific requirements in terms of notice periods and withdrawal procedures, which is why you’d be smart to seek professional advice beforehand. Now that you know you can access your retirement annuity before the age of 55, you’re probably itching to get started, but with professional guidance you’ll be properly informed to make the best decisions.

The right financial emigration partner will help you ascertain how much you can transfer, how long it will take and how much it will cost, before you make the decision. Your financial emigration partner will help you every step of the way and will hold your hand through getting the necessary SARS clearance and completing all the necessary paperwork.

At this point, you’ll be able to surrender your retirement annuity and convert your retirement annuity savings into cash. Your proceeds will then be taxed according to the withdrawal lump sum tax table, but once it’s done the money is yours to do with as you please.

Whether you decide to spend it, save it or invest it, the best part about about financial emigration is that the choice and the freedom is yours.

Lump Sum Tax Table

AT RETIREMENT  TAX RATE WITHDRAWAL TAX RATE
R0 – R500 000 0% R0 – R25 000 0%
R500,001 – R700,000 18% R25 001 – R660 000 18%
R700,001 – R1,050,000 27% R660,001 – R990,000 27%
+R1,050,000 36% +R990,000 36%

Table Source: South African Revenue Service

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