The tax consequences on your retirement if you move abroad

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Recent events in South Africa have raised an important question for retirees or retirees who are considering diversifying their investment portfolio towards offshore investments and the impact of the concept of ’emigration’ on citizenship, affecting access to funds and influencing your investment (s).

The flow of money in and out of the country is regulated by the exchange control (excon), which governs how much money you are allowed to leave the country, as well as the circumstances under which you can take money out of the country. ‘foreigner.

What does this mean for a South African citizen? If you leave the country to move to another country, it affects your tax residency status. First, you will need to inform the South African Revenue Service (Sars) that you have ceased to be a tax resident, you will need to apply for a Tax Compliance Status (TCS) for ’emigration’, before you are allowed to transfer. funds abroad – this does not apply if you applied for emigration before March 1, 2021.

Be aware that when you report on your IT12 income tax return that you have ceased to be a resident for tax purposes, there is a deemed capital gain event. You will be deemed to have disposed of all property except real estate. For tax purposes, you will realize a capital gain (or loss) on the date you ceased to be a deemed tax resident to be the date of disposal. This date is usually the date you left South Africa with the intention not to return.

Once Sars confirms that you are tax compliant, you will be able to withdraw money overseas with a maximum limit of R10 million in assets per year. However, in the year you cease to be a tax resident, you will be allowed to transfer up to R 1 million as travel allowance without obtaining TCS. If you want to transfer more than R10 million overseas, you will go through a more demanding verification process by Sars and you will need the approval of the Financial Supervision Department (FSD). FSD will check your tax status and the source of funds to determine the possibility of money laundering or possible illegal financing.

If you live abroad, but plan to return to South Africa in the future, declaring yourself a “temporary resident abroad” has certain advantages, including paying pensions and annuities directly to your foreign bank accounts, as well as receiving gifts and monetary loans from the South. African residents. These payments exclude the indemnities mentioned in the previous paragraph.

Before March 1, 2021, Sars allowed people who had officially emigrated from South Africa to access their retirement pensions and savings in preservation funds before reaching retirement. This savings would be paid into the emigrant’s capital account and could then be withdrawn abroad. This process will still apply if you submitted an emigration application before February 28, 2021 and your application is approved by the Reserve Bank no later than February 28, 2022.

If you applied to emigrate after March 1, 2021, you will only be able to access your retirement annuity or preservation fund benefits if you have not been a South African tax resident for an uninterrupted period of three years from March 1, 2021.

Note that if you have not accessed your pre-retirement benefit from your preservation fund, you will have immediate access to your benefit, as has always been the case. If you leave South Africa when your work or stay visa expires, you will still be able to access your benefits in the same way as before March 1, 2021.

The reasons for these requirements are twofold. First, the intention is to facilitate the withdrawal of money from the country and, second, to discourage people from severing ties with South Africa. Requiring a three-year commitment adds a certain degree of permanence to the relocation abroad, discouraging the withdrawal of retirement savings if you are leaving South Africa for only a short period.

Determining your residence for tax or exemption purposes can get quite complicated and depends on your particular situation. It is recommended that you seek advice from a South African tax or currency control specialist if you are leaving or have left South Africa to live abroad, either temporarily or permanently.

Adapted from a recent article published by Allan Gray


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