South Africans living abroad face various challenges when it comes to withdrawing their retirement policies from their home country.
Tax Consulting SA said that the most recent of these challenges had been the South African Reserve Bank’s (SARB) implementation of the three-year lock-in rule on retirement funds – implemented in March 2021.
On top of this restriction of access to retirement funds, cumbersome requirements and additional administrative burdens have fallen in the path of ex-pats.
According to the tax firm, prior to the three-year lock-in rule, the South African Reserve Bank had been heavily involved in collaboration with the South African Revenue Service (SARS) – known as the ‘old regime’.
Currently, in the ‘new regime’, SARS is the primary authority when it comes to retirement funds and has put forward strict requirements that ex-pats need to adhere to.
“During the withdrawal process, the policy provider will act as the ‘middleman’ between SARS and the policyholder.”
Tax Consulting SA provided the following list of general requirements ex-pats need to be aware of:
Proof of exit from South Africa and residency abroad
The most essential item that the taxman requires is proof from an ex-pat that they have exited the country as well as relevant supporting documentation.
Documents required could include confirmation of residence or approval of entry into the overseas country, such as permits, visas or certificates of citizenship.
“Not only does this confirm your physical residence and right to live abroad, but it also confirms, to SARS, that you intend to stay abroad indefinitely,” said the firm.
Certificate of Tax Residence in the current country of residence
SARS also requires proof that the policyholder is, in fact, registered for and/or paying tax abroad – to confirm physical residency.
Confirmation of tax residency in a country outside of South Africa has become a vital requirement for withdrawing retirement policies.
“This step has been introduced to ensure that you are, in fact, being taxed correctly, both in South Africa as well as your current country of residence. It is important to note that this needs to be provided for three consecutive years, which further confirms that the policyholder has satisfied the three-year lock-in period requirement,” said Tax Consulting SA.
Confirmation of the date of cessation of tax residency in South Africa
A recent 2022 development now sees the Notice of Non-Resident Tax Status letter required by SARS.
“Not only does this letter confirm your cessation of tax residency in South Africa, but it also informs the policy provider as well as SARS of the exact date of cessation.”
Subsequently, this makes it easier for the retirement holder to confirm that they have actually met the three-year lock-in period.
For those ex-pats who have already ceased tax residency prior to the introduction of the new letter, they are required to reverify their tax residency status with SARS and obtain a new letter.
SARS does not automatically issue this letter, even when there is a cessation application under the older regime system.
“The letter is a new requirement as part of the financial emigration process and comes with further and more strict verification methods and requirements,” Tax Consulting SA said.
The group said there are many ways for a South African ex-pat to fulfil the multiple requirements and ensure that there are no inconsistencies when it comes to withdrawing retirement funds. Tax Consulting SA provided the following tips:
- Keep a written record of all communication: When you call your policy provider, make sure to take note of the date, time, and name of the person you spoke to, said Tax Consulting SA. You can even send written confirmation of the conversation for your ease.
- Ask for everything in writing: If your policy provider is being particularly inconsistent, ask them to confirm their requirements in writing. This will allow you to have a clear record of what is being asked and by whom, and you can refer back to it if needed, the company added.
- Ask questions: If you’re not sure why they need a particular document or fee, don’t be afraid to ask. Ultimately, it is your policy, and you have a right to understand what’s going on.
- Consult a professional: If you are still struggling to withdraw your policy, consider consulting a professional, such as a financial advisor or an ex-pat tax professional.