Permanently relocating from South Africa to another country is a huge, life-altering decision that triggers a complex web of logistical and emotional challenges. Among these challenges, proper management of your finances throughout the process of emigration is a critical part of ensuring your successful transition. With this in mind, we’ve asked our team of tax experts, financial planners and foreign exchange specialists to share the answers to the questions they are most often asked by their clients.
From securing your bank accounts and understanding insurance policies to managing investments and dealing with tax-related matters, our experts provide valuable insights into the importance of creating a solid financial emigration plan for your future. By following their recommendations, you will be better equipped to navigate the often stressful path of emigration, ensuring that your financial (and mental) health remains intact as you embark on your new life chapter.
Question 1: What finances do I need to sort out before I can emigrate from South Africa?
“Finances” refer to any financial interests that an individual or family might hold, whether in South Africa and worldwide. This includes your banking affairs (bank accounts, credit accounts and mortgages), insurance types (policies and annuities), investment types (investments), pension funds (employer pensions and preservation funds), and your South African Income Tax affairs).
Question 2: Why is it important to have a Financial Emigration™ plan?
Since emigration ranks as one of the top three most traumatic emotional experiences one can go through in a lifetime, it is advisable to have a carefully-considered emigration plan and “to-do” lists. This, of course, includes your finances. A financial emigration plan is crucial to manage the pressure and responsibilities of transitioning your finances upfront. Generally speaking, you’re only going to emigrate once, so you can’t afford to make any mistakes simply because you were not adequately informed or prepared. The goal is always to protect the assets and liquidity that will accompany your physical emigration, while ensuring a smooth transition into your new country once you have arrived.
Read more: Emigrating from SA? What must be part of your Financial Emigration Plan™?
Question 3: Where do I start getting my financial affairs in order before emigration?
Having overseen thousands of financial emigrations since 2010, our experts shared their most important tips on getting ready to make an international relocation.
1. When it comes to your banking:
- Change the method by which you receive OTPs (One-Time Passwords) from your South African bank from SMS to email. This is important because your South African cellphone number will be canceled/disconnected eventually.
- Pay off debt or make arrangements for repayment. You don’t want to receive money in your bank account that you can’t transfer later due to a block on your account. While debt won’t stop you from emigrating, it won’t magically disappear either.
- Open an offshore bank account, preferably in the country you are emigrating to. Typically, you can only open and fund an account, but you can’t initiate transactions. Add the new account as a beneficiary to your South African account and test the transfer functionality to your new foreign account.
– The cost of transferring to overseas bank accounts ranges from R250 to R750 per transfer; try to transfer larger amounts per transaction to save on costs.
– The unpredictability of the exchange rate makes it difficult to determine the best time to transfer money, but by staggering your transfers out over time, you should at least obtain a decent average exchange rate.
- Negotiate the exchange rate with your bank where possible, especially with larger transfers. This ensures that you can purchase more foreign currency.
2. When it comes to your insurance policies:
Obtain a full schedule of all your risk insurance policies (life, disability, and medical).
- Consider the reasons why you might want to keep the cover in place, as it could be canceled otherwise.
- It’s advisable to secure alternative coverage in the foreign country before canceling your insurance.
Get information about the liquidity available in your annuities and payout policies, and consider cashing out for cash flow purposes.
- Payout annuities can be paid up in full to avoid the headache of funding policies from abroad.
- Any contributions to a retirement fund in South Africa cannot be offset against tax, so it’s wiser to make retirement provisions in your new country and utilise local incentives for tax deduction purposes.
Read more: Tax implications of emigration on your South African retirement funds.
3. When it comes to your investments:
Get the latest schedule of your investment values. Consider factors like cash flow needs, the current exchange rate, and investment values to determine the timing if investments are to be cashed out.
A good principle to bear in mind is to base retirement capital in the country you’re moving to. Your $100,000 in the USA today is still $100,000 in 5 years. Given the depreciation of the ZAR against the $ over the past 5 years, it means your $100,000 would have cost you R1,430,000 in October 2018, compared to the cost of the same $100,000 today, which is R1,912,000 (-R482,000/-33%).
4. When it comes to your South African Income Tax:
Ensure your tax affairs (personal, companies, trusts, etc) in which you have interests are up to date.
- Remember that for any transfer larger than R1 million in a calendar year, you will need a tax clearance certificate, which will not be issued if your tax affairs are in arrears.
- Change the receipt of OTPs from SMS to email on the SARS eFiling platform.
- Utilise the annual/calendar year exchange control allowances of R1 million per individual (between husband/wife and spouse) to transfer money without any tax clearance certificate. In other words, you and your spouse can transfer R2 million on December 31 and another R2 million on January 1, so you can move R4 million without any tax clearance simply by timing your transactions.
- Discuss your affairs with an expert to identify possible tax refund opportunities before and after emigration.
- If your intention is to leave South Africa permanently, the South African Revenue Service must be notified within 21 days of physically leaving South Africa, and a tax emigration process must be initiated.
5. Find a reliable partner to go through the financial emigration process with you
While migrating your finances might seem like something you can handle on your own, be aware of the fact your knowledge will have its limitations. Although it’s advisable to do your own research thoroughly and to weigh all the information in order to make informed decisions, this is one of those times where an expert’s advice will be worth every cent.
Despite the fact that financial emigration might trigger emotions of fear and anxiety, it is also an opportunity to consolidate your personal finances, take advantage of tax benefits, and plan for your new future – with the right advice from FinGlobal to inspire you.
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