Cross-border inheritances can feel complicated. That’s why we’re stripping away all the legal jargon and discussing testamentary trusts in straightforward terms – to make it easy for everyone without a law degree to understand the purpose and implications of testamentary trusts in South Africa. Having recently unpacked some frequently asked questions about testamentary trusts in South Africa with offshore beneficiaries it’s time now to examine how to transfer money from South African testamentary trusts to beneficiaries who live overseas.
As you’ll see if you take a look at the infographic below, the manner in which the individual beneficiary receives their testamentary trust distribution will depend on their tax and/or exchange control residency status back in South Africa.
How to transfer money from South African testamentary trusts to beneficiaries who live overseas:
For the purposes of this exercise, from an exchange control and tax perspective, an individual will fall into one of four possible categories when it comes to qualifying for a testamentary trust distribution:
An individual who has never recorded a formal emigration with the South African Reserve Bank (SARB) or ceased tax residency with the South African Revenue Service (SARS) – a South African resident temporarily abroad which is viewed as a South African resident for tax purposes.
- An individual who has completed formal emigration through SARB, before 1 March 2021 – a non-resident for exchange control purposes.
- An individual who has ceased tax residency with SARS, after 1 March 2021 – a non-resident for tax purposes.
- An individual who has never been a South African tax resident, because they were born abroad or left South Africa as a minor – a foreigner national.
Regardless of which category you fall into as an individual, if you are the beneficiary of a testamentary trust you will need a South African bank account into which the inheritance funds must be paid. Non-residents/foreigners will need to open a non-resident bank account in South Africa.
Thereafter, to get the money transferred out of this South African bank account, it is necessary to identify the relevant exchange control allowance and the applicable tax clearance process, which depends on the amount of money being transferred out of South Africa.
- For tax residents, amounts under R1 million can be transferred offshore without prior tax clearance, using the Single Discretionary Allowance. Amounts exceeding R1 million will require clearance from SARS through the Foreign Capital Allowance, while amounts greater than R10 million will require prior approval from SARB, before tax clearance from SARS can be granted.
- For foreigners, there is no limit to the amount of income/capital that can be transferred offshore, provided they can verify the legitimate source of such funds.
- For tax non-residents, there is no limit to the capital amount that can be transferred offshore. To transfer testamentary trust distribution income offshore under R10 million, it is necessary to apply for a TCS – Good Standing from SARS before forex can be transferred abroad. For income that exceeds R10 million, an AIT TCS is required from SARS, in addition to prior approval from SARB.
It is important to note, however, that a new paperwork requirement has been introduced by SARS for non-residents seeking to use the Approval – International Transfer process. It is now necessary to be able to produce a SARS Non-Resident Confirmation Letter to verify the date on which tax residency was ceased.
FinGlobal: cross-border financial specialists for South Africans overseas
Confused about which process to use for transferring South African testamentary trust distributions abroad? Unsure of your tax residency status in South Africa? FinGlobal can help. We can assist you with obtaining your SARS Non-Resident Confirmation Letter, and provide guidance on whether you need to cease tax residency in South Africa. We’re here for you, every step of the way, to make sure that getting your hands on your inheritance money is as straightforward and as stress-free as possible.
To discuss your specific financial and tax emigration requirements with us, please leave your contact details below and one of our experienced financial specialists will be in touch to explain further.