- Posted by Roger Hendricks
- On 08/02/2020
- 0 Comments
- Financial, Financial Emigration, SARS, South African, South african expats, tax, tax-efficient, working abroad
Formal emigration, also known as financial emigration, this means informing the South African Reserve Bank (SARB) that you will no longer be a resident in South Africa. The process is done for exchange control purposes, which we will go into in more detail below.
Myths about Formal emigration
- Formal emigration is not physically moving overseas
- Formal emigration does not mean changing your citizenship status – you do not need to give up your South African passport
- Formal emigration is not a way to escape paying tax in South Africa
- Formal emigration is not compulsory – you do not have to do it if it provides no benefit to you
WHY SHOULD FORMAL EMIGRATION BE PART OF YOUR MOVE OUT OF SOUTH AFRICA
Formally emigrating brings with it several advantages as the Reserve Bank no longer sees you as a resident for exchange control purposes, allowing you to access and transfer financial assets out of the country.
The main reason that people proceed with financial emigration from South Africa is that it enables access to transfer their retirement annuities before the retirement age of 55.
This movement of RA invested funds from South Africa allows the investor to choose a more stable currency for retirement funding. Once disinvested the investor do not have to reinvest these proceeds in another retirement savings product, therefore have the freedom to spend it on what they wish, like a new home or travel.
If you are expecting to receive any of the following then it might be a good idea to formally emigrate as it will make it simpler to access and transfer these funds out of South Africa at a later date.
- Inheritance from a South African estate
- passive income (such as rent or dividends)
- proceeds from selling a property
- income from a trust
As a South African resident (temporarily residing abroad), you have an annual discretionary allowance of R1 million per adult and a further R10 million can be taken out under your foreign investment allowance per calendar year. However, if you have formally emigrated, there is no limit to the amount of money you can transfer out of South Africa.
FORMAL MIGRATION VS TAX EMIGRATION
The process of formal emigration does not mean you are automatically considered non-resident for tax purposes. The South African Revenue Service (SARS) has its own criteria to determine your tax residency status and whether or not you should be paying tax in South Africa.
SARS will investigate into factors like how much time is spend in South Africa, as well as where your family and assets reside. However, your formal emigration can be used as additional proof of your intention to settle overseas if your tax residence status is being questioned. Very important: It alone is not enough to prove your tax residency.
After financial emigration you will only need to declare South African sourced income. Once you have no assets remaining in South Africa, you can deregister for tax through a formal process with SARS. Then only will you be exempt from submitting tax returns.
CAN I MOVE BACK TO SOUTH AFRICA AFTER FORMALLY EMIGRATION?
Yes, formal emigration does not mean renouncing your citizenship. As a South African citizen, you are always free to live and work in South Africa. However, you will need to apply to the SARB to be declared resident again when you return.
SOULD I SELL ALL MY SOUTH AFRICAN ASSETS ONCE I FORMALLY EMIGRATE?
No, your asset portfolio can remain the same. You can hold and contribute to any assets in South Africa if you wish to. However, it is a good idea to notify policy and other providers that you reside abroad as this may affect conditions in your contracts.
HOW DOES ONE FORMALLY EMIGRATE FROM SOUTH AFRICA?
You can formally emigrate yourself, but it is a laborious and admin-intensive process. You need to deal with several different parties including SARB, SARS, the banks and investment companies, so many people choose to rather engage professional services to take care of the process for them.
Every case is unique, but the basic steps are:
- Make the application for financial emigration through a South African bank
- Apply for tax clearance from SARS
- Apply to SARB for formal emigration
You will need to fill in forms (MP336) and submit supporting documents such as proof of permanent residence abroad.
- On receipt of SARB approval, your formal emigration is complete
- Proceed with opening a blocked Rand account and transferring funds overseas
If you wish to withdraw or cash out your retirement annuity, there are additional steps involved in dealing with your investment company, so it is best to speak with a certified advisor for assistance.
DiscloseAll Financial Services offer a range of formal emigration services to South Africans living overseas who have retirement annuities, pension related investments or some form of ‘blocked funds‘ tied up in South Africa. Contact us for more information.