Many South African expats leave South Africa with their minds firmly focussed on their overseas opportunities – whether they are leaving to explore the world or are starting a new job abroad. It is only once they are settled in their new country and have spent a few years on foreign soil that their thoughts turn to whether it makes sense to financially emigrate. However, many don’t know what financial emigration involves, whether it is the same as formal emigration from South Africa or whether it makes financial sense for them to do so. In this blog post, we hope to bring you some clarity on these issues.
Why choose financial emigration?
For expats who still have a lot of their capital tied up in South Africa, it can make good financial sense since one of the main benefits of financial emigration is the establishment of the free flow of capital from South Africa – to your new home country abroad.
The important thing to realise is that financial emigration does not affect your South African citizenship or your right to reside in the country. You do not have to give up your passport.
Financial emigration/formal emigration
Financial emigration formalises your exit from South Africa for exchange control purposes. It 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! Financial emigration does not mean that you are no longer a tax resident in South Africa.
The benefits of financial emigration
As a financial emigrant, all your capital will be consolidated under one roof in an emigrant’s capital 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 to anywhere in the world.
The financial emigration benefits of a free flow of capital include the transfer of the full capital value of your retirement annuity proceeds offshore, even before you turn the age of 55. The cash from your retirement annuity can be used for any purpose – from buying a new home to investing in your children’s education.
On completing your financial emigration, you may also transfer any South African source inheritance abroad, any passive income, for example rent, dividends, director’s fees and income from discretionary or vesting trusts, proceeds from a third party life policy and the proceeds of any assets declared in your emigration application.
How to financially emigrate
In order to financially emigrate your South African tax affairs must be in order and up to date. You can undertake the financial emigration process on your own by making a formal application to SARB. If you have lived outside of South Africa for more than five years, you do not have to submit a tax clearance provided all your remaining assets and liabilities are declared. Once SARB has approved your financial emigration status, you need to open up a emigrant’s capital account with the bank that submitted your application to SARB.
If you are planning on withdrawing your retirement annuity, you need to be aware that the withdrawal is subject to tax and an application for a tax directive needs to be made to SARS. Once SARS has approved the application and the tax has been deducted, and your bank has seen proof of your SARS tax clearance and proof of your financial emigration, the funds can be placed in your emigrant’s capital account.
When your funds have reflected in your emigrant’s capital account, your bank runs the necessary checks and once they have given their approval, your funds can be released into the bank account of your country of residence.
How to financially emigrate if you are already overseas
If you are a South African living abroad and would like to know more about how you can maximise your finances through financial emigration from South Africa, accessing your South African retirement annuity and our tailor-made tax solutions for South Africans around the world, contact FinGlobal today for your free and no obligation consultation and quote.