In this article, we deal with the consequences in relation to retirement funds when relocating abroad as well as exchange control considerations.
Exchange control considerations
The concept of emigration as recognised by the South African Reserve Bank (“the Reserve Bank”) was phased out with effect from 1 March 2021 and was replaced by a verification process with the assistance of SARS’ eFiling. Prior to 1 March 2021, a MP336(b)-form was completed placing worldwide assets on record with the Reserve Bank with further steps to be followed, including obtaining tax clearance status for emigration purposes.
The intention as of 1 March 2021 is for natural person emigrants and natural person residents to be treated identically. Going forward South African exchange control residents (i.e. SA citizens, permanent residents and foreign nationals domiciled in South Africa) need to apply for a Tax Clearance Status (“TCS”) for emigration purposes on SARS’ eFiling system.
Although this was intended to ease the burden on South African exchange control residents, there are still practical considerations from a tax perspective to consider, including ensuring that the person is in fact registered on eFiling in the first instance and secondly that the person is tax compliant. Once the South African exchange control resident applies for the TCS for emigration purposes, an automatic verification or audit will ensue, hence the caution to first ensure the taxpayer’s tax affairs are in fact in order.
What we often see is clients with children studying abroad and subsequently taking up permanent employment outside of South Africa. Prior to commencing with their studies, they were not legally required to register with SARS as a taxpayer. Should they inherit from their parents in future, it is practice prevailing for Authorised Dealers in financial institutions to request a TCR01 from SARS to ensure the necessary documents are on file should they be audited by the Reserve Bank. This may also be applicable when beneficiaries benefit from a domestic trust whether it is capital or income in nature.
For this practical reason it is important for the child to then register on SARS’ eFiling. It is important to note that registering on SARS’ eFiling does not equate to being tax resident in South Africa. It is to ensure that, practically and specifically for exchange control purposes, the heir is able to adhere to the administrative requirements to externalise the inheritance (or any other capital for that matter) and place it on record with SARS and the Reserve Bank.
We are able to advise on these matters on a case-by-case basis.
Retirement funds
As of 1 March 2021, payment of lump sum benefits to individuals who are no longer South African tax residents as defined in the Income Tax Act, shall only be allowed by Authorised Dealers if the member of the South African retirement fund has been non-tax resident for at least three consecutive years.
Taxpayers will therefore only be able to access their retirement benefits if they can prove to the South African retirement funds administrator that they have been non-resident for tax purposes for an uninterrupted period of three years, together with an applicable Tax Directive that was issued to the South African retirement fund administrator by SARS.
In addition, the South African retirement fund administrator may request proof of the taxpayer being a tax resident in another jurisdiction. The taxpayer should provide an Authorised Dealer with the applicable TCS from SARS as well as documentation from the pension fund administrator confirming the final amount paid out to the taxpayer. This documentation will be required prior to effecting transfers from South Africa abroad in this regard.
It is therefore vitally important for emigrants to ensure that they are firstly compliant with their tax returns, including recording when (i.e. on which date) they have ceased tax residency, prior to applying for a TCS PIN to transfer their retirement funds from South Africa abroad. It is also recommended that previous South African tax residents obtain formal advice relating to their tax and exchange control resident status to ensure that the factual matrix in each individual’s instance is reflected in tax returns.
Should you have any particular questions in relation to this article, please contact Suzanne Smit at suzanne@fidelisvox.co.za.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)