The process of ceasing tax residency and transferring funds can be daunting, with numerous legal and compliance hurdles.
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For South Africans who are leaving the country to live overseas, it is not just about pack up and go, and breaking tax ties with the South African Revenue Service (Sars), according to Lovemore Ndlovu, Head of Sarb Engagement and Expatriate Compliance, Tax Consulting SA..
Ndlovu said that ceasing South African tax residency to protect your worldwide income from tax liability in SA, is a major step that comes with the stress of relocating as well as the uncertainty around your assets.
"Questions about what happens to your investments, properties, and policies can cause sleepless nights, because the answer is rarely straightforward. It depends on the specifics of each asset and situation," Ndlovu said.
Ndlovu shares a concise guide to help expatriates navigate this complex process.
Proper planning starts with differentiating your assets between capital and income, according to Ndlovu.
This distinction is important for determining how Sars and the South African Reserve Bank (Sarb) treat them.
Property sales, and lumpsum retirement vehicle withdrawals are classified as capital in nature, while earnings like rental income, dividends, or interest are classified as income in nature.
Sars will also assess the origin and compliance of your funds to ensure it is properly declared under a correct source. Incorrect classifying the funds can result in audits or rejected applications to cease tax residency.
Keep in mind that the Single Discretionary Allowance (SDA) of R1 million that South African residents can take out of the country in a calendar year, is not available for non-tax residents.
Ndlovi said that for them, all capital offshore transfers need a Sars Approval International Transfer (AIT) Tax Compliance Status (TCS) PIN.
"On the other hand, income offshore transfers do not require Sars or SARB approval for amounts below R10 million. An annual Good Standing TCS PIN will be required for verification for one’s tax compliance standing once a year," Ndlovu said.
"Furthermore, expatriates can retain South African assets such as fixed properties, investments, policies, and a Trust until they are ready to transfer the proceeds offshore or for as long as they wish."
New legislation which came into effect in March 2021 restricts the withdrawal of retirement and pension funds, according to Ndlovu.
Individuals must be non-residents for at least three consecutive years post-cessation in order to get access to these funds.
Ndlovu said: "Authorised Dealers (banks) may require further source verification documents prior to processing transfer of these funds offshore".
Inheritance funds less than R10 million are freely transferable offshore without needing approval from Sars and Sarb after the estate has been finalised while benefits that are over R10 million will need an AIT TCS PIN or a manual letter of compliance where the individual is no longer registered with Sars.
Ndlovu said that as a non-resident, Sarb will allow for the classification of unlisted local shares as non-resident assets.
The proceeds will be freely transferable offshore without having to get an AIT TCS PIN from Sars or any Sarb approval. The dividends from these shares will also be allowed to flow directly to offshore without the need for clearances.
"The process of ceasing tax residency and transferring funds can be daunting, with numerous legal and compliance hurdles," Ndlovu said.
"Seeking professional assistance ensures that your move abroad will be smooth and minimises unnecessary risks. Experts in expatriate tax and compliance can provide clarity and help you focus on your new journey while you enjoy the benefit of the assets you have acquired over time."
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