If you’ve waved goodbye to South Africa permanently, and you’re currently in the process of wrapping up your financial and tax affairs from abroad, there’s a strong possibility you’re considering what to do with your retirement annuity now that you’ve emigrated. You might find yourself now searching for clarity, only to be met with confusing jargon and conflicting information. Fortunately, there’s a clear, expert-led solution: the FinGlobal Way. Here, we’ve got straightforward guidance on retirement annuity withdrawals in South Africa, including the tax implications of lump-sum payments, to help you on your journey. No more guesswork, just clear answers.
Retirement annuities in South Africa – recapping the rules
Retirement annuities are tax efficient savings vehicles that make it easier for South Africans to prepare for their retirement years. Generally speaking, tax residents are not permitted to withdraw from these funds, except in a handful of limited exceptions, and in light of the updated two-pot retirement system.
Early retirement annuity withdrawal – accessible by tax emigration
The rules around retirement annuity withdrawal access change, after permanently relocating from South Africa. This move allows expats to fully withdraw their retirement annuity capital at any age, provided they meet two key requirements:
- They must have officially ceased their South African tax residency with the South African Revenue Service (SARS) by tax emigration.
- They must maintain non-resident tax status for three consecutive years following the cessation of tax residency.
What is tax emigration? Why would you want to be a tax non-resident?
The process of ceasing your South African tax residency, often referred to as tax emigration, involves a formal application to the South African Revenue Service (SARS) to officially change your tax status. It doesn’t happen automatically just because you’ve left the country, it requires a detailed application to SARS that demonstrates your intention to permanently reside elsewhere.
Why is it important to update your tax resident status after emigration? It all boils down to differing tax obligations. While a South African tax resident is taxed on global income and assets, regardless of location, a non-resident is only taxed on income and assets derived from South African sources. As such, tax emigration is an important step if you’ve moved abroad permanently, as it aligns your tax obligations with your new residency to avert potential double taxation. It provides financial clarity and simplifies your tax affairs. Conveniently, your new non-resident status also makes you eligible to cash in the full value of your retirement annuity savings early, at any age.
All you need to do is prove you have been a non-resident for three consecutive years, pay SARS their cut and any administrative penalties for early withdrawal, and the total value of your retirement annuity can be withdrawn.
What is the tax if you withdraw from a retirement annuity in South Africa?
The growth of your retirement annuity investment is generally tax-free until you make a withdrawal. This is when SARS takes a real interest in you. To ensure that you understand the tax implications of withdrawing from a retirement annuity in South Africa, you’ll need to know a few things first.
- When you withdraw a lump sum from a retirement annuity, it is subject to taxation according to a specific tax table provided by the South African Revenue Service (SARS). This is known as retirement annuity lump sum tax. There is a tax-free portion, and the remaining amount is taxed on a sliding scale.
- All lump sum payments you receive from retirement funds are added together when calculating these tax amounts. So if you have taken previous lump sums from other retirement funds, these amounts will be added to the current lump sum when calculating the tax.
- Factors that influence your tax amount include the amount of the withdrawal, your age, previous withdrawals from retirement funds and the current SARS tax tables.
For the specific tax tables, please see the SARS Retirement Lump Sum Benefits page.
How to withdraw your retirement annuity – what to know about transferring funds
The final amount that you withdraw from your retirement annuity (after taxes and penalties) will need to be paid into a non-resident bank account in South Africa. A valid AIT TCS PIN is required before the funds can be remitted abroad from the non-resident account.
Important to note: The confirmation letter is issued to anyone who has successfully completed the tax emigration process.
Read more: What to know before transferring policy proceeds and cash from South Africa.
FinGlobal: retirement annuity encashment specialists for expats
If you’re an expat aiming to withdraw your South African retirement annuity, FinGlobal offers specialised support. Our team has helped thousands of South Africans globally, and we’re ready to assist you.
From tax emigration to consolidating policies to providing guidance on your expected retirement annuity lump sum tax, and facilitating international fund transfers, FinGlobal offers a complete suite of services for expats. Contact us today to explore our streamlined cross-border financial solutions.