Leaving South Africa for a new adventure is exciting, but worrying about your hard-earned assets and investments can dampen your mood. This guide explains what happens to your assets when you cease being a South African tax resident.
Key points to remember:
- Capital vs. income: Different rules apply to different types of assets. Capital funds (like property sales) have different transfer rules than income funds (like rental income).
- Capital funds: You can transfer R1 million per year without approval. Larger amounts require tax clearance and approvals. You can keep some assets in South Africa and transfer them later.
- Income funds: Freely transferable after tax residency ends, but require annual tax compliance checks. Large trust distributions need additional approvals.
- Inheritance: Freely transferable if received after becoming non-resident and estate is finalised. Amounts over R10 million require additional steps.
Deciding to cease tax residency is a major life decision for many South Africans moving abroad. The stress of relocation often raises questions about what happens to assets like investments, properties, policies, and portfolios. People worry about whether their assets will stay or go with them on their new adventure. However, there’s no simple yes or no answer. The outcome depends on various factors and the specific details of each asset. This complexity adds to the confusion for expats, especially given that there is so much conflicting information available.
What does tax emigration entail?
Tax emigration involves submitting an application to the South African Revenue Service (SARS) to terminate your South African tax residency, transitioning your tax status from resident to non-resident for tax purposes. As tax residents in South Africa are liable for taxes on income and assets worldwide, becoming a tax non-resident means you will only be taxed on income and assets sourced within South Africa.
Read more: How are residents and non-residents taxed in South Africa?
Determining capital vs income
Preparation is key in planning for your tax migration. This starts with having a good understanding of your assets and income. This is important because the tax treatment of the transfer of your funds from South Africa is determined by the nature of your funds – whether or not they are capital or income in nature.
Getting the two confused could quickly land you on the wrong side of the tax law, resulting in declined tax clearance applications and stressful audits, all of which is going to make your already stressful relocation that much more stressful.
Lastly, the source of your funds is also important, because SARS is going to want to know where you got the money – did you make it legitimately? Have your funds been correctly declared? SARS is on a mission to ensure no tax goes uncollected, which means ensuring that taxpayers are not engaging in any tax avoidance practices. There can be no stashing cash in couch cushions, so be transparent about your finances, and leave South Africa with a clean slate.
What are capital funds and how are they treated?
Capital transfers are subject to exchange control allowances, and can require SARS tax clearance. In the year that you cease tax residency, you are granted a R1 million once-off allowance to assist in relocating your finances. Should you need to move more than that, you will need to seek SARS Approved International Transfer (AIT) Tax Compliance Status (TCS) PIN for the desired amount.
If you choose to leave assets in South Africa, these will form part of your capital assets, formerly known as ‘emigrant remaining assets’. These are not permanently stuck in South Africa, and can be transferred at a later date, provided you request an additional AIT TCS PIN once you are ready to move your money. For example, you can hold onto your South African property and only sell later, and transfer the sale proceeds abroad once the sale is finalised.
Read more: Tax matters: Non-resident tax when selling property in South Africa.
The South African Reserve Bank (SARB) also permits individuals to externalise cash balances and unlisted shares. This means that once you have become a non-resident for tax purposes, your local shares can be endorsed as non-resident assets, after which the proceeds will be freely transferable, without the need to obtain an AIT TCS PIN from SARS. Dividends payable from those shares can also be freely remitted offshore.
What happens to your retirement annuity and pension?
Since legislative changes, cashing out your retirement and pension products has become a little more complicated. This can only now be done by authorised dealers, once you have become a non-resident for tax purposes, and maintained this non-resident status for a minimum of three unbroken years.
Read more: South African Retirement Annuities: what you can do with them before and after emigration?
Income funds:
Any income that is derived from your capital assets once you become a non-resident can be freely transferred offshore, once the authorised dealer has verified your tax compliance status, through the provision of a Good Standing TCS PIN.
Funds that are classified as income include – fixed property rentals, dividends, payouts from life annuities, interest earned on cash in bank or loan accounts, remaining salaries earned in South Africa from an unrelated party, and distributions from trusts originating from an income nature source.
Transferring income funds is not subject to allowances, unlike funds that are capital in nature. However, distributions from a South African inter vivos trust that exceed R10 million will require an AIT TCS PIN and SARB approval. So, if you receive:
- R20 million dividends from your non-resident endorsed shares, you can transfer these simply with a Good Standing TCS PIN from SARS.
- R20 million income distribution from an inter vivos trust, resulting from dividends, an AIT TCS PIN from SARS and SARB approval will be required.
Inheritance funds:
If you receive a monetary inheritance, you can freely transfer these funds offshore once the resident estate has been finalised. You do not need a TCS PIN from SARS. This changes if you are no longer registered for tax on the SARS system, and you will only be allowed to transfer the funds offshore if it is under R10 million. If the amount is higher, you will need a manual letter of compliance from SARS in order to transfer funds.
To use a manual letter of compliance, you must no longer be registered for tax on the SARS system and intend to transfer:
- An inheritance or life insurance policy (excluding lump sum benefits from pension preservation, provident preservation, retirement annuity funds, and life annuities from insurers) exceeding the value of R10 million.
- A distribution from a South African trust as a beneficiary, regardless of the amount.
Read more: Updates to the rules on transfer of income and capital distributions from inter vivos trusts.
FinGlobal: cross-border financial specialists for South Africans
If you’re ceasing tax residency in South Africa and moving your funds, it’s important to be careful in your preparation and ensure that you have a proper understanding of the rules. Tax laws can be tricky, so it’s a good idea to get help from experts who know about expat tax and exchange control regulations. FinGlobal is perfectly positioned to guide you through the process of your financial migration, making everything easier for you and avoiding potential problems. With our support, you can focus on your new chapter abroad, without worrying too much about the details – we’ve got it covered for you! Some of the services we offer include:
- Tax emigration
- Retirement annuity withdrawal
- Tax clearance (AIT and Good Standing TCS PIN)
- Foreign exchange
To get started with FinGlobal’s convenient, secure services, please leave your contact details below and we’ll be in touch to discuss your requirements.