Retirement tax changes planned for South African expats

National Treasury has confirmed it is looking to make retirement and tax changes for people who emigrate from South Africa.

The proposed changes relate to the cashing out of retirement savings when leaving the country, and when specific taxes are applied.

As the tax laws currently stand, a retirement fund member who cashes out their retirement savings and emigrates from South Africa – and is thus no longer tax resident – is subject to tax in South Africa using the retirement fund withdrawal table.

If the member defers accessing the funds until after they actually retire, they are only subject to retirement tax at that stage.

However, Denver Keswell, senior legal advisor for Nedgroup Investments, said that Treasury has concerns with this structure: specifically, expats who become tax resident in another country where a double tax agreement with South Africa is in place.

In this situation, these individuals will instead pay tax in that country, and South Africa forfeits its rights to tax the former South African resident, losing out on money owed.

To overcome this, Treasury intends to tax a retirement fund member when they no longer qualify as a South African tax resident, Keswell said.

Their retirement fund interest will thus be subject to tax using the withdrawal table the day before they no longer qualify as a tax resident.

Keswell said that if these people choose to leave their retirement benefit in South Africa, then any tax payable will be deferred until they access their retirement interest.

“This will ensure that South Africa receives tax due. Treasury will use the relevant retirement tax table at the time of access and provide a tax credit on the calculated deemed tax,” he said.


Retirement fund transfers 

Currently, members of retirement funds who retire early and decide to transfer to another retirement fund will be taxed.

“Treasury proposes allowing tax-free transfers for early retirees provided the transfer is to a similar or more restrictive fund,” Keswell said.

Allowing members to use retirement interest to acquire annuities on retirement

“When a member retires, they can commute (take in cash) a portion of their benefit and use the rest to purchase a compulsory annuity,” Keswell said.

He added that the annuity must be one of the following options:

  • The retirement fund can provide the annuity by paying it directly to the member; or
  • The fund can purchase it from a South African registered insurer in the name of the fund; or
  • Purchase the annuity it in the name of the retiring member.

“Only one option can be chosen and Treasury is looking to provide flexibility by allowing a combination of options.”

Keswell said that government ‘proposes expanding the amount of retirement interest that may be used to acquire annuities’ but it is not clear what is meant by that.


Read: Government investigating wealth tax for South Africa – what to expect

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Retirement tax changes planned for South African expats