The SA Expat's Roadmap for Moving Funds Abroad
In an increasingly interconnected world, many South Africans find themselves considering opportunities abroad, whether for career advancement, lifestyle changes, or retirement, however the answer to the question is not so straightforward and involves more than just packing up and leaving; it requires a comprehensive understanding of ceasing tax residency and exchange control regulations.
Lovemore Ndlovu
Head of SARB Engagement and Expatriate Compliance
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Understanding Financial Emigration
Financial emigration is the formal process for South Africans relocating abroad permanently, including transferring financial assets. It requires obtaining a SARS notice of non-resident tax status letter. South Africa’s tax system is residence-based, meaning residents pay taxes on global income. Transitioning to non-resident tax status involves formal declaration to SARS and ongoing compliance with tax and exchange control regulations. The SARS notice confirms cessation of tax residency and specifies the date. Once deemed a non-resident for tax purposes, individuals are only required to declare and pay taxes on income earned within South Africa and adhere to regulatory requirements set forth by SARS and exchange control authorities.
Exchange Control Regulations
For individuals considering financial emigration, understanding and navigating these regulations is vital. Here are some key points to consider:
1. Changing tax residency status requires corresponding adjustments to banking status as per SARB mandates. When one is no longer a tax resident in South Africa, individuals must update their banking status by converting bank accounts to non-tax resident status.
2. All transfers are subject to exchange control approval and clearance by the South African Revenue Service (SARS). Transferring South African assets upon ceasing tax residency may not be straightforward. For instance, cashing out retirement policies after maintaining non-tax resident status for at least three consecutive years necessitates the authorized dealer verifying the source and available TCS Pin.
3. The treatment of fund transfers depends on the nature of funds, whether classified as capital or income. For those transferring proceeds from capital assets sale, they need to provide an AIT TCS PIN from SARS to authorized dealers.
Navigating the Process
South African residents have the privilege of transferring up to R1 million out of the country annually through their Single Discretionary Allowance (SDA) without needing clearance from SARS. However, transfers beyond this limit require an Approval International Transfer (AIT) Tax Compliance Status (TCS) PIN from SARS. Conversely, non-residents can transfer up to R1 million as a Non-Resident Travel Allowance (TA) in the year they formally cease tax residency. This allowance is one-time and cannot be used in subsequent years. Additionally, once tax residency is ceased, individuals are no longer eligible to make use of the SDA. Therefore, all capital transfers out of South Africa, except for specific exceptions, need SARS approval through means of obtaining an AIT TCS PIN. It is important to distinguish between TA and SDA, as any remaining SDA balance can’t be used under TA.
For any transfers exceeding R10 million, approval from the Financial Surveillance Department of SARB is additionally required. This triggers a comprehensive Risk Management Test, including tax status verification, assessment of funds’ source, and compliance with anti-money laundering and counter-terrorism financing requirements.
Conclusion:
Navigating exchange control regulations in South Africa during financial emigration requires careful planning, compliance with regulatory requirements, and professional guidance. By understanding the intricacies of these regulations and following the necessary steps, individuals can successfully emigrate their finances while minimizing risks and ensuring legal compliance. Financial emigration marks a significant milestone in one’s journey to relocate abroad, and thorough preparation is key to a smooth transition.