National Treasury and the South African Revenue Services (SARS) have published the 2021 Draft Taxation Laws Amendment Bill. The draft legislation proposes significant changes that will impact South Africans looking to emigrate.
The bill has been under significant scrutiny over the last couple of weeks, as it includes the addition of an ‘exit tax’ levied on retirement funds at the point of emigration, say tax experts at specialist advisory firm Tax Consulting SA.
Add to that the existing three-year lock-in rule, which came into effect from March 2021 and will remain in place regardless of the proposed additional exit tax, and the scrutiny has quickly turned into fury, the firm said.
“Where taxpayers could previously encash their annuities at the point of emigration, the lock-in rule forces emigrants to reside outside of South Africa for three consecutive years before gaining access to their retirement savings.
“Now, if the draft tax bill changes are signed into law, they will face additional taxation after waiting out that lock-in period.”
This is problematic as there is no way to tell what future tax rates will be and if there will be a ripple effect on maturation values or encashment values three years down the line, Tax Consulting SA said.
“With a slew of petitions from industry leaders and the draft bill still open to public comment, the intent behind the implementation of the suggested changes is indicative of a more aggressive revenue service.
“SARS has made it clear that they will not leave a stone unturned when it comes to foreign income or taking money out of South Africa.”
Panic and planning ahead
Taxpayers working abroad or planning an exit from South Africa are furious by news of the additional exit tax and confused about their retirement funds and their future as an expatriate, said Tax Consulting SA.
“Many are now having to relook their retirement savings if they plan to leave South Africa after March 2022.
“Some are investigating alternative investment platforms as a substitute for their current annuities, while others are poised to halt their contributions altogether. Early panic has crept into the hearts of taxpayers, which has made them hungry for information.”
There are certainly options available, the firm said.
Though some are unexplored, investment firms and Financial Services Providers (FSPs) across South Africa are trying to find creative ways to limit the tax exposure of their clients’ treasured savings.
This includes relooking the multitude of financial products in the marketplace and pitting them against the effects of the proposed draft bills.
“Offshore endowment policies, for instance, fall outside of the ambit of the exit tax calculation in terms of the current tax dispensation, which enables investors to withdraw funds at various intervals.
“One such example is Discovery’s Global Endowment, which offers investors favourable investment options as a retirement alternative.”
“No matter where you are in the emigration process, or how long you have been contributing towards your retirement annuity, it is imperative to heed sound financial advice before making decisions that could cost a small fortune in taxes.”
Commentary by Susan Warren insurance specialist at Africorp Advisory Services, and Reabetswe Moloi legal and compliance manager at Tax Consulting SA.