A survey conducted by the Expatriate Petition Group (EPG) shows that a significant number of South Africans living abroad plan to take their money out of the country due to concerns around proposed retirement changes.
Some of the biggest concerns relate to the additional ‘exit tax’, which is set to take effect from 1 March 2022.
“In the National Treasury’s latest published Draft Tax Bills, which incorporates the tax proposals made in the 2021 budget, an amendment proposes to tax retirement fund interests of individuals when they cease South African tax residency,” said specialist advisory firm Tax Consulting SA.
“This proposal is the latest amendment directed at taxpayers who intend to leave South African shores permanently, which may upend taxpayers’ carefully planned retirement,” it said.
The EPG, which has an active membership of 15,000 South Africans abroad, conducted a survey to contextualise the proposed retirement fund changes from the perspective of South African expatriates.
The survey results show that:
- 75% indicated they still have retirement interests in South Africa;
- 88% of the participants indicated that the amendment would have a negative impact on them personally;
- 64% stated that it would materially change their retirement planning.
Jean du Toit, head of tax technical at Tax Consulting South Africa, said the survey provides clear evidence that many South Africans abroad still value the South African retirement investment offering but that an unjust tax will cause them to look elsewhere.
“The series of amendments that effectively targets expatriates creates a negative narrative that this group of individuals have to operate within a system where there is no regard for their interests,” he said.
“Moreover, it gives credence to the belief that expatriates are singled out and that there is no certainty on what they may face in years to come.”
Du Toit said the proposal to apply an exit tax to retirement interests is counterintuitive to the government’s objective to keep the members of this segment of the tax base within the South African tax net.
Not all doom and gloom
While there are options available to mitigate such a law change where there is upfront planning, the survey revealed that 70% of participants had not been informed of the practical impact of this change.
Chris Nel, tax and investment specialist at Africorp Solutions, encouraged taxpayers to have a more optimistic outlook while the dust settles around the draft bill changes.
Many expatriates are unaware that they can backdate their financial emigration to before the three-year lock-in rule came into effect, given that they meet certain criteria, he said.
“This means they can encash their retirement annuities or pension funds and then reinvest it in global financial vehicles that will be better suited for retirement in another country.”
“However, if you are in the early phases of retirement planning, there is still time to prepare for the three-year lock-in rule, as well as the blow that the additional exit tax in the draft tax bill changes will have on your retirement savings.”