The tax implications on your retirement should you move abroad
Have kids abroad or considering retirement on a Mediterranean island? Read this broad overview on tax implications when moving abroad.
By Martin de Kock (CFP®) - Ascor® Independent Wealth Managers
Recent events in South Africa have raised an important question for pensioners or would-be retirees planning to diversify their investment portfolio to 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 exchange control residency (excon), governing the money you are allowed to take out of the country, as well as the circumstances in terms of which you may take money abroad.
What does this mean for a South African citizen? Should you leave the country to take up residency in another country, it affects your tax residency status. Firstly, you will have to inform the South African Revenue Service (Sars) you have ceased to be a tax resident, you will have to request a tax compliance status (TCS) for “emigration”, before being permitted to transfer any funds abroad – this does not apply if you applied for emigration before 1 March 2021.
Be aware that when you indicate on your IT12 tax return that you have ceased to be a resident for tax purposes, there is a deemed capital gains event. You will be deemed to have disposed of all assets excluding immovable property. For tax purposes, you will realise a capital gain (or loss) with the date on which you ceased to be a tax resident deemed to be the disposal date. This date is usually the date on which you left South Africa with the intention of not returning.
Once Sars has confirmed that you are tax compliant, you will be able to take money offshore with a limit of up to R10 million in assets a year. However, in the year you cease to be a tax resident, you will be allowed to transfer up to R1 million as a travel allowance without obtaining a TCS. Should you wish to transfer more than R10 million offshore, you will be subject to a more demanding verification process by Sars and you’ll need approval by the Financial Surveillance Department (FSD). The FSD will verify 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 “resident temporarily abroad” has certain benefits, including pension and annuity payments directly into your foreign bank accounts, as well as receiving monetary gifts and loans from South African residents. These payments exclude the allowances mentioned in the previous paragraph.
Prior to 1 March 2021, Sars allowed individuals who formally emigrated from South Africa to access their retirement annuity and preservation fund savings prior to reaching retirement. These savings would be paid into the emigrant’s capital account and could then be taken offshore. This process will still apply if you submitted an emigration application before 28 February 2021, and your application is approved by the Reserve Bank on or before 28 February 2022.
If you submitted an emigration application after 1 March 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 on or after 1 March 2021.
Note that if you have not accessed your pre-retirement withdrawal 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 visit visa expires, you will still be able to access your benefits in the same way as before 1 March 2021.
The reasons for these requirements are twofold. Firstly, the intention is to make it easier to take money out of the country and secondly to discourage people from cutting ties with South Africa. Requiring a three-year commitment adds a degree of permanency to relocation abroad, discouraging withdrawing retirement savings should you leave South Africa for a short time only.
Determining your residency for tax or excon purposes can become quite complicated and depends on your unique circumstances. Seeking advice from a South African tax or exchange control specialist is recommended if you are leaving or have left South Africa to live abroad, whether on a temporary or permanent basis.
This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/the-tax-implications-on-your-retirement-should-you-move-abroad/
Read more about Ascor® Retirement Planning Services