Emigrating from South Africa creates several administrative headaches, especially regarding one’s finances, and understanding the differences in one’s assets is essential.
According to Lovemore Ndlovu from Tax Consulting SA, having a good understanding of one’s income and assets is important.
When one moves internationally, the transfer of funds from South Africa will be guided by the nature of these funds, i.e., whether they are regarded as capital or income in nature.
“With an easy example being that the sale of the property is regarded as a capital event, however, any rental activities are regarded as income,” Ndlovu said.
“Misalignment on these could very quickly land the taxpayer in hot waters, with declined applications and burdensome audits, further building on an already stressful move.”
It is also important to reference the origin of these funds and if they have been correctly declared and all above board.
Capital transfers are subject to change control allowances and SARS clearance certificates. This affords the taxpayers a R1 million once of discretionary allowance in the calendar year that an individual ceases their tax residency.
On the other hand, if additional funds require transfer, a SARS Approval International Transfer (AIT) Tax Compliance Status (TCS) PIN for the desired amount will need to be acquired.
The assets the taxpayer keeps in South Africa will be part of their “capital assets” (F.K.A emigrant remaining assets). These do not have to stay in South Africa and can be transferred at a later date via an AIT TCS PIN.
For instance, one can keep their South African property and transfer the proceeds once a sale is finalised.
The SARB also allows the externalisation of cash balances and unlisted shares.
This means that once an individual has ceased tax residency, local shares may be classified as non-resident assets and will be freely transferable offshore without the need for an AIT TCS PIN from SARS or any SARB approvals. The dividends from these shares can also move directly offshore.
“With new imposed legislation, the cashing out of retirement and pension products has become more complicated as this is only allowed to be carried out by authorised dealers if the individual has remained a non-tax resident for at least three consecutive years post their cessation,” Ndlovu said.
All income generated from capital assets, once one has ceased tax residency, is freely transferable offshore, with the requirement that the Authorised Dealer verifies one’s SARS tax compliance status once a year by the provision of a Good Standing TCS PIN.
Ndlovu said that the funds seen as income include property rentals, dividends, payout from life annuities, interest earned on cash in bank or loan accounts, remaining salaries earned in South Africa and distributions from trusts from an income nature source.
“The transfer of income in nature funds is not subject to allowances as is the case with capital in nature funds. However, income distributions from South African Inter Vivos Trusts of over R10 million require an AIT TCS PIN and further SARB approval,” he said.
“To put this into perspective for clarity, if you receive R20 million dividends from your non-resident classified shares, those funds are transferable with an annual verification of a Good Standing TCS PIN from SARS. Whereas, if you receive a R20 million income distribution from an Inter Vivos Trust which emanates from dividends, an AIT TCS PIN from SARS and further SARB approval will be required.”
Inheritance acquired in South Africa is freely transferable offshore, given that the resident’s estate has been finalised.
One does not need a TCS PIN from SARS, irrespective of the amount intended to be transferred.
However, this is different if one is no longer registered for tax on the SARS system.
In this case, if the inheritance is over R10 million, one will have to apply for a manual letter of compliance (transfer of funds from SARS.) This letter can only be used if one is no longer registered for tax on the SARS system and wishes to transfer:
- An inheritance or life insurance policy (excluding lump sum benefits from pension preservation, provident preservation, retirement annuity funds and life annuities from insurers) above the value of R10 million; or
- A distribution from a South African Trust as a beneficiary, irrespective of the amount.