By Tim Powell
Emigrating can be an exciting experience, but it’s also immensely stressful. It’s challenging to move your entire life overseas and sorting out your financial affairs often makes the process even more complex. Many South Africans who have relocated abroad, or are thinking of doing so, can benefit from tidying up their financial affairs in the Republic by undergoing the process of financial emigration.
What is financial emigration?
Financial emigration is the process of informing the South African Reserve Bank (SARB) that you have permanently left South Africa and relocated abroad. This changes your official status with them from a permanent resident, or resident living temporarily abroad, to that of a non-resident of South Africa. This doesn’t happen automatically when you emigrate from the Republic.
A common misconception is that financially emigrating requires you to lose your South African citizenship – an emotive issue. However, declaring yourself a non-resident of South Africa does not mean that you relinquish your citizenship in any way. You can return to South Africa and become a resident again any time you choose.
The benefits of financial emigration
After you have financially emigrated, you will be able to access and withdraw your retirement annuities before the age of 55, along with your other financial assets. Your application, and its complexity, will differ depending on your unique situation. In our experience the benefits usually outweigh the hassle of the admin involved in this process.
Financial emigration allows you to access and transfer the following out of South Africa:
- Proceeds from your South African retirement annuities before retirement age
- Future inheritance funds
- Passive income from rentals, dividends, director’s fees or a salary
- Proceeds from a third-party life policy
Financial emigration is not required to move the proceeds of other assets, such as bank accounts, discretionary funds, living annuities, pension and provident funds, proceeds from sale of property and life insurance policies. These funds can still be transferred using the R1 million and R10 million foreign investment allowances.
The initial and ongoing tax treatment may differ significantly between different assets, so it is important that you get the correct tax advice before making any decisions or applications. This will ensure that you make an informed decision and do not face repercussions down the line.
Furthermore, with the changes to the tax laws promulgated for the 2020 tax year, many South Africans working abroad are financially emigrating to ensure that they are not seen as tax resident, and therefore taxed on their foreign income earned while working overseas.
Is financial emigration for everyone?
Whether financial emigration is right for you will depend on what kind of retirement savings and assets you hold; it is not necessary for all expats. All South Africans have the annual R1 million single
discretionary and R10 million foreign investment allowances. These can be used for foreign investment and asset transfer without having to financially emigrate. However, if you have a retirement annuity that you would like to cash in, then financial emigration is the only option.
While the current law allows expats to access their retirement policies, legislation may change in the future. It’s best to start your financial emigration once you have relocated, so you can access your funds as soon as possible.
Where to begin?
The financial emigration process can be daunting and intense, but its benefits can make it worth it. We recommend using an experienced South African financial emigration specialist who can carefully consider your personal circumstances and advise on the best strategy.
The average turnaround time to complete a financial emigration is three months, barring any speedbumps with SARS or particularly complex circumstances.
There are potential tax implications as well as opportunities to implement tax-efficient plans. A specialist who also has cross-border financial and tax planning knowledge will ensure that you make the best decisions for your long-term financial goals.
If you’re considering financial emigration, or are unsure about whether it’s right for you, get in touch with our financial emigration specialists. You can email us on firstname.lastname@example.org or give us a call on 021 657 2133 and we will provide you with a complimentary financial emigration assessment.