What you need to know when taking your rands out of South Africa

The National Treasury has placed more emphasis on South African Revenue Service (SARS) compliance for South Africans who transfer funds out of the country and has removed certain exchange control measures – most notably the financial emigration process.

South Africans leaving the country are required to notify SARS when they become a non-tax resident – a process called tax emigration, said Tim Powell, director of forex at Sable International.

“The announced changes look to be an effort to enforce this process, which can have implications, especially for high-net-worth individuals and South Africans with worldwide assets at the date of departure from South Africa,” he said.

Changes to retirement annuity withdrawal

To cash out your South African RA, you used to undergo a process called financial emigration that involves changing your residency status with the South African Reserve Bank.

As of 1 March 2021, you will need to:

  • Tax emigrate by notifying SARS you are no longer tax resident.
  •  Be able to demonstrate to your fund provider that you have been tax resident in another country for three consecutive years or more before you can encash the RA and take it out of the country.

“Each investment company may have different requirements for this proof.

“Before they can begin the process, they will also need to obtain authorisation from SARS in the form of a tax directive, and SARS will only issue this if your tax status has been correctly updated to non-resident,” Powell said.

Changes to the single discretionary allowance

South Africans are entitled to two allowances for transferring money offshore. The first is a R1 million Single Discretionary Allowance (SDA), which does not require tax clearance.

The second is a R10 million Foreign Investment Allowance (FIA), which requires a tax compliance status application with SARS.

“SARB has now made a minor change that will affect South African expats. While you will still be entitled to your FIA, South Africans will only be able to make use of the SDA up to and including the year in which they tax emigrate.

“This means that any transfers out of South Africa after tax emigration will require tax clearance in ensuing years,” said Powell.

Changes to claiming a South African inheritance while overseas

If you’re a South African living overseas and you inherit in South Africa, there have been a few changes to how you can transfer that inheritance offshore, noted Powell.

“The exact process will vary depending on the amount inherited, your residency status and whether you have a South African identity document.

“If you have a South African ID, you can use your SDA, if you have not tax emigrated, or FIA to transfer the money out of South Africa.”

Prior to 1 March 2021, if you did not have an SA ID you could have completed the financial emigration process.

“Until now, there has been a lack of clarity regarding the new process, but SARB has recently passed a ruling stating that, if you can prove you are non-resident and are no longer active on the SARS registered database, you may receive an inheritance (or life insurance policy payout) of up to R10 million,” said Powell.

“For amounts greater than R10 million a manual letter of compliance is required. You may wish to work with a foreign exchange provider well-versed in South African exchange control regulation and tax compliance, who can assist you with providing the needed proof.”

No avoiding exit tax when leaving South Africa

When you tax emigrate from South Africa, you become immediately liable for a Capital Gains Tax (CGT) contribution based on the value of your worldwide assets on the date you cease to be tax resident in SA.

Sometimes dubbed “exit tax”, this amount is essentially SARS claiming what tax it would have received had you sold the assets while you were a South African tax resident, said Powell.

Many South Africans are under the misconception that they can avoid paying this tax by keeping the fact that they’ve left South Africa from SARS, he said.

“While, in the past, SARS was often able to claim this tax (plus penalties) retroactively when they discovered non-residents, the new process means that South Africans will need to change their tax status to non-resident if they wish to withdraw their retirement annuities (RA).

“For those not requiring the encashment of an RA, common reporting standards (CRS), i.e. the sharing of information amongst authorities and institutions in different countries, is closing the net on those choosing not to ensure their tax status with SARS is not up to date.”

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