In a recent blog article, we unpacked the changes to the South African exchange control regulations that have an impact on South African citizens and tax residents. This was only the tip of the iceberg, and today we’re back with another lesson in how these rule changes will affect different individuals and their access to retirement funds. Buckle your seatbelts, it’s a bit of a rollercoaster ride!
Citizenship, exchange control and tax residency
Formal emigration is out
Once you have followed the process to cease your South African tax residency, new rules will apply to the assets that you will be allowed to take out of the country.
- You must obtain a tax compliance status (TCS) PIN which confirms that you are tax compliant and square with the South African Revenue Service (SARS). This lets you transfer up to R10 million of your assets offshore per year.
- You will no longer be allowed to use the annual single discretionary allowance (SDA) that is available to residents, but in the year that you cease tax residency you will be permitted to transfer up to R1 million as a travel allowance without obtaining a TCS.
- You can also move household and personal effects up to R1 million per family unit by means of a SARS “Customs Declaration”, as long the assets have been properly declared on the relevant forms.
- Should you wish to transfer more than R10 million offshore, SARS is going to hold you to a more stringent tax verification process and you will then need to apply for approval from the Financial Surveillance Department (FSD) of the South African Reserve Bank (SARB). Before such transfer can be approved, SARS and the FSD, will ascertain your tax status and as well as the legitimacy of the source of funds, and you will be assessed against anti-money laundering and countering terrorism financing requirements.
How do you access benefits from your South African retirement annuity and preservation funds now?
Before 1 March 2021, once you’d completed formal emigration you were allowed to access your retirement annuity (RA) and preservation fund savings before the official retirement age of 55. Once tax was dedicated from these proceeds, the remainder would be paid into your emigrant’s capital account and from there it could be moved offshore. This process will still apply if you submitted an emigration application before 28 February 2021, and your application is approved by FSD on or before 28 February 2022.
Now, if you have not previously formally emigrated, from 1 March 2021 you can only access your RA or preservation fund benefits if you’ve not been a South African tax resident for an uninterrupted period of three years on or after 1 March 2021. However, if you have not previously used your pre-retirement withdrawal benefit from your preservation fund, you can access your benefit immediately – this has always been the case and has not changed. In the same vein, if you leave South Africa because your work or visit visa expires, you can still access your benefits in the same way as before.
Introducing the new cessation of South African tax residency test
The new “three-year” test allows for the payment of lump-sum benefits where you:
- Have ceased to be South African tax resident (as defined in the Income Tax Act); and
- Maintain this tax non-resident position for three consecutive years or longer before or after 1 March 2021. This means that the three-year waiting period can start before 1 March 2021, and you do not have to start counting those three years again from 1 March 2021.
Why the three-year wait?
The three-year requirement was hotly debated between our National Treasury and industries. SARB asserted that phasing out formal emigration would actually make it easier to take money out of the country and would discourage citizens from cutting ties completely with South Africa. Furthermore, the three-year requirement is meant to be an indication of commitment, showing that a relocation overseas is permanent. This stops individuals from leaving South Africa for a limited amount of time and accessing their retirement savings prematurely and unfairly. The whole point is to save for retirement, and any loophole that defeats this purpose is counterproductive.
However, it’s not all doom and gloom now that formal emigration is no longer an option. In fact, ceasing to be a South African tax resident has a much lower compliance burden in reality than the previous requirement to emigrate financially, which was admin-intensive and time-consuming. That much was true – National Treasury’s intention is to make it less onerous for South Africans to access their retirement benefits on leaving the country.
How will the new tax residency test work in practice after 2021?
SARS has introduced a new declaration form that can be used to inform the tax authority that a taxpayer has broken South African tax residency. Before this, the main method of informing SARS of a change in tax status was achieved by marking the date of cessation on your annual tax return via e-Filing. If the declaration form is used, it must be submitted along with the necessary supporting documents via email. Whether you use the tick box method on e-Filing or the declaration form, makes no difference on the outcome. What’s the point of the form then, if you can get the job done on e-Filing? There are some circumstances that call for the declaration form, and others where the form can be used to your advantage. This could be where:
- You broke tax residency long before the option to inform SARS was available, and you now want to inform SARS that your tax residency status has changed and you would like the declaration form because it provides an additional level of certainty – hard proof that SARS has acknowledged your move.
- You left South Africa before the digital revolution and you do not have an e-Filing profile, you can use the declaration form instead of going to the hassle of setting up a new e-Filing profile from outside of the country.
FinGlobal: Global tax specialists for South African expats
Determining your tax residency can get complicated with so many subjective factors at play. This makes it worthwhile to seek objective, impartial advice from South African exchange control and tax specialists if you are leaving or have left South Africa to live abroad, whether on a temporary or permanent basis. Managing your tax obligations and cross-border financial affairs doesn’t have to be tricky, with the right financial services partner by your side.
For a free, confidential SARS tax residency assessment, leave us your contact details and we’ll be in touch to get started.