Financial Emigration for people leaving South Africa

The process of financial emigration can be rather complex, especially for foreign nationals leaving South Africa, and with new laws set in 2020 by the National Treasury and SARS, now is a better time than ever to be seeking advice from experts.

This article highlights and explains some of the key information you need to know, and what changes are being made.

Understanding more about the financial emigration process can ensure you have what you need to be successful.

What exactly is Financial Emigration?

Financial emigration is defined by a South African resident opting to change their status to ‘non-resident’ for tax and exchange control purposes.

Financial emigration includes benefits such as:

• The ability to potentially access any South African retirement funds before the usual age of 55 (free of legislative penalties). Please be aware that some providers would have an early exit fee – the amount of which would depend on the product and provider.
• Having no tax liability in South Africa on any foreign income
• Being able to transfer South African inheritance funds without being subjected to the South African resident exchange control process
• Having full tax compliance, showing that your tax residency status cannot be withdrawn afterwards

What are the main steps of the process?

An emigration form called an MP336(b) will need to be completed, signed by yourself and then sent to your bank to be signed.

This form is used to declare any of your remaining South African assets and liabilities to the South African Reserve Bank (SARS). It is a vital part of the process and without it, you cannot financially emigrate.

The other step for this process involves applying for an emigration tax clearance certificate.

This application involves showing SARS evidence of all your remaining asserts in South Africa (including details of insurance policies, trusts, inheritances, property, income, and retirement funds).

This can be applied for in three ways. Via post, a SARS branch office or usually more conveniently and efficiently for expats, getting it via requesting through the E-filing system.

Providing proof of your current address will also be necessary to be able to complete the process.

Who is classed as tax and non-tax resident of South Africa?

You are a South African tax resident if you meet one of two tests

• The ordinarily resident test
• The physical presence test

You are also considered tax-resident of South Africa if you are not found to be exclusively a resident of another country for the purposes of the application of any tax treaty

To classify as a non-resident for tax purposes in South Africa, you must ensure that you do not meet the above requirements.

If you decide on changing your tax residency status, it will mean submitting an application to SARS. Each case is then closely evaluated based on its own merits.

New law changes for March 2021

A three-year lock-in will come in to play from March 2021, which introduces a limited window period in which you will need to conclude your financial emigration before the deadline.

After the deadline (1^st March 2021), emigrants will be forced to wait three years before they are able to access their funds.

If you are planning on using funds for your emigration from sources such as an RSA, it is important to know that these funds may not be immediately accessible to you due to the amount of time you have been a non-south African resident.

To be able to access your funds within your retirement annuities, you will need to be able to prove that you have been a tax resident of another country for more than a total of three years and that you have physically been out of the country within this time. (A ‘tax exit’ from South Africa will also need to have been completed and submitted to be able to access these funds).

What is needed to access my R.A funds?

Your retirement annuity fund will complete a manual ‘Form C’ in respect if the R.A.

Supporting documents that will be required will include:

• A copy of your passport which validates your exit from South Africa
• A copy of the Visa which indicates the expiry date and the applicable paragraph within the definition of ‘visa’ in S1 of ‘The Immigration Act’ in terms of which Visa was issued
• A copy of the certificate of residency which was obtained from the relevant Tax Authority of the country of which the person in question permanently resides