Until recently the South African Reserve Bank used the term “blocked rand account” to refer to the special bank account allocated for your assets when you financially emigrate from South Africa. Now; better known as a Capital Account. Many people are under the misapprehension that the term ‘blocked’ means that their funds are ‘frozen’ or blocked from leaving South Africa. However this is not the case at all. In this instance the word “blocked” is used in the same way as you would “block” a time in your calendar – it is set aside for a special purpose – the purpose of enabling the free-flow of your assets from South Africa, after you have completed the financial emigration process. A Capital account can sometimes be referring to a non resident account and is the only vehicle through which you can smoothly and legally transfer your South African money offshore. It’s an account to which exchange control restrictions have been applied…to work in your favour.
What does financial emigration mean?
Financial emigration is simply the process of exiting South Africa financially and means your status – for exchange control purposes – changes from resident to non-resident with the South African Reserve Bank (SARB). That’s all! You do not have to give up your South African passport or citizenship, and if you so choose, you can return to South Africa and continue to live and work there in the future.
As a financial emigrant, all your capital will be consolidated under one roof in your capital account/non-resident account that is managed by your financial emigration specialist at your appointed bank who facilitated your financial emigration. From this account, you can instruct your bank to pay funds to an account anywhere in the world.
The benefits of financial emigration
Financial Emigration enables the free flow of your funds from South Africa and also brings with it a number of substantial financial benefits. As a financial emigrant you may transfer offshore:
- The proceeds of your South African retirement annuity after tax, even before the age of 55. This can be used for any purpose in your new country including buying property – or travelling around the world!
- South African source inheritance
- The proceeds of assets declared in your emigration application
- Passive income, i.e. rent, dividends, director’s fees, salary for services rendered in South Africa and income from discretionary or vesting trusts
- Proceeds from a third party life policy
How to open a Capital account
- Bank application and approval
The first thing you need to do is apply to the South African Reserve Bank for financial emigration through one of the South African banks. If you have been living outside South Africa for more than five years, you can do this without a tax clearance, provided all your assets and remaining liabilities are declared. Note that should a Retirement Annuity withdrawal take place a Tax Clearance will be required unless you retire from a Retirement Annuity.
- Applying for tax clearance
If you have been residing outside South Africa for less than five years, you will require a tax clearance from the South African Revenue Service (SARS). Once you have applied to SARS and received your tax clearance, you can submit your application to the SARB to change your status to non-resident.
- Final approval and withdrawing your assets
Once SARB has approved your financial emigration status, you need to open a non-resident bank account with the bank that submitted your application to SARB. Once your funds have been reflected in your blocked rand account/non-resident account, and your bank has run the necessary checks, they will give the all clear and your funds will be released in the bank account of your country of residence.
This entire process can take between four and six months and depends on your unique situation and the status of all parties involved.
What type of income can be transferred via a capital account?
Stipulations for fund transfers vary for different countries, but for South African expats who have financially emigrated, capital accounts can be used to transfer:
- the full capital value of a retirement annuity
- interest and profits
- monthly pension payments (registered pension funds only)
- rentals on fixed property
- income distributions from close corporations
- directors’ fees
- close corporation member fees
- cash bonuses on insurance policies
- income received from a trust created in terms of a last will and testament
- income received from an inter-vivos trust
- the difference between the purchase consideration and maturity value of quoted gilts.
Financial emigration is a complicated process, especially if you are attempting if from abroad. As South Africa’s first financial emigration company, FinGlobal has helped thousands of South African’s streamline the financial emigration process. For more information about financial emigration and how to open a capital account, contact us today.