The last date to submit your application with the South African Reserve Bank for financial emigration was 28 February 2021. South Africans who have financially emigrated, can make pre-retirement lump sum withdrawals from their retirement funds, subject to the rules of the specific fund.
Financial emigration is, however, not the only way to access and transfer your retirement funds offshore. The Income Tax Act makes provision for a person emigrating from South Africa to access amounts in his/her retirement funds when that person ceases to be a South African tax resident and such person has remained non-tax resident for at least three consecutive years on or after 1 March 2021.
What does tax emigration mean?
Tax emigration and financial emigration must not be confused. With financial emigration you change your residency status for exchange control purposes. Tax emigration means that you have changed your residency status for tax purposes.
Your tax residency determines where and how you get taxed. South Africa has a residency-based tax system. That means that South African tax residents are taxed on their world-wide income and capital gains, whereas tax non-residents only pay tax in South Africa on their South African sourced income and capital gains on South African fixed property.
What are the consequences of tax emigration?
Tax emigration has capital gains tax (CGT) consequences. The day before you become tax non-resident, you are deemed to dispose of your world-wide assets (other than fixed property in South Africa) at market value. SARS also deems there to be an additional tax period during the relevant tax year. One tax period up to the date before becoming tax non-resident, and one period thereafter. This may also have provisional tax implications.
The onus is on the taxpayer to inform SARS that your tax status has changed. This should be reported in the tax return covering the period of your tax emigration.
Is tax emigration something you should consider?
If you have left South Africa with the intention not to return, you may have already tax emigrated. It is imperative then to formalise your tax emigration with SARS.
If you are considering leaving South Africa to live and work overseas, it is important to understand and consider the tax consequences of staying tax resident in South Africa and of emigrating for tax purposes. Remember, as tax resident you will be liable for tax in South Africa on the income earned overseas.
If you wish to access and transfer your retirement funds offshore, subject to the fund rules, tax emigration may be your only option.
If you need to speak to someone to assist you in making the right decision and to help you though the process, please contact Carin Grobbelaar at email@example.com.