The Taxation Laws Amendment Act 23 of 2020 (TLAA 2020) was passed into our law books on 20 January 2021. In doing so, changes were introduced that effectively reset the opportunity in our tax law that allowed South African tax residents to access their retirement fund upon emigration, effective 01 March 2021.
What is changing in our tax law?
What does this mean for South Africans?
- Previously South African tax residents were able to circumnavigate the rules that prevented them from touching their retirement funds, if they moved abroad and formalised their emigration with the South African Reserve Bank.
- This meant that by completing the administrative process of formal emigration with the Reserve Bank their status was changed from resident to non-resident and they could accordingly withdraw their full fund amount from their retirement annuity fund, pension preservation fund, or provident preservation fund.
Now, as South Africa is in the process of modernising its exchange control systems, the concept of formal emigration as a means to trigger the withdrawal benefit is being phased out. A new trigger event has been introduced through the TLAA 2020, which will allow members to access their withdrawal benefit from 01 March 2021.
Out with formal emigration, in with tax emigration
Given that our exchange control system is being overhauled in favour of a system that focuses more on tax compliance, it makes sense that the trigger event for accessing the withdrawal benefit would be tax-related. As such, from 01 March 2021, South African members can access and withdraw their retirement savings, but only after they have ceased to be a tax resident and have maintained this tax status for three consecutive years or longer on or after the effective date. To allow for those who were already in the process of formal emigration before the effective date, the amended legislation provided access to the withdrawal benefit as long as applications were submitted and approved by SARS before the effective date.
How does it work now? When may a member qualify for a full withdrawal on emigration or the cessation of South African tax residency?
Long story short, from 01 March 2021, members belonging toa retirement annuity fund, pension preservation fund and provident preservation fund, may be eligible for a full withdrawal of savings before retirement where:
- That member is (or was) a South African tax resident who emigrated from South Africa; where that emigration was formalised by the Reserve Bank for exchange control purposes.
- That member submitted their application for formal emigration to the Reserve Bank on or before 28 February 2021 and their application was accordingly approved on or before that date.
The member has ceased to be a South African tax resident, a change in status which has been maintained for an uninterrupted period of three years or longer on or after 1 March 2021.
What has not changed?
The requirements to withdraw for members who have left South Africa at the expiry of a work or visit visa remain the same.
What happens now?
The South African Revenue Service (SARS) still needs to provide clarity on exactly how things are going to operate moving forward, including details on the supporting documentation that will be required from 01 March 2021. SARS has provided the procedural requirements necessary to process withdrawal instructions, but has not yet confirmed the supporting documentation that will be required. We are also awaiting further clarity on how the three-year non-residency requirement will work.
Additional changes brought in by the Tax Law Amendment Act 2020: foreign income exemption relief confirmed
- As a result of COVID-19 travel restrictions, the time requirement for the foreign employment exemption has been amended from183 days in aggregate to 117 days.
- The lowered rate only applies to the aggregate number of days, while the requirement that 60 of those days spent outside of South Africa must have been consecutive remains unaltered.
- It must be pointed out that this amendment to the days’ requirement is not a permanent one, it is intended to grant temporary relief and will only apply to a 12-month period for the year of assessment that runs 29 February 2020 – 28 February 2021.
FinGlobal: tax experts for South Africans abroad
To understand the exact implications of this legislation on your tax situation, it’s a good idea to get solid guidance from qualified tax advisors. South Africans working abroad, or planning to work abroad need to pay special attention to the requirements surrounding their tax circumstances, especially in light of the fact that one of the major introductions to tax law by means of this amendment is the one that criminalises negligent non-compliance. What does this mean? It means that doing nothing about your taxes is considered negligence, which is now a criminal offence.
To see how FinGlobal can help relieve your tax stress and understand the implications of the tax law changes, leave your contact details and we’ll be in touch to discuss your requirements.