Worried About Your Assets After Ending Your Tax Residency in South Africa?

Everyone seeks to protect their assets as effectively as possible, but it’s essential to bear in mind that the Tax Man is always watching.

For South Africans moving abroad, it’s not simply a matter of packing up and cutting ties with the South African Revenue Service (SARS). Terminating your South African tax residency to safeguard your global income from tax obligations in South Africa is a significant decision that brings along the stresses of relocation and uncertainty about your assets.

Worries regarding the future of your investments, properties, and policies can lead to sleepless nights, as the answers are often intricate and depend on the specific circumstances of each asset and situation.

This guide aims to help expatriates navigate this complex process.

Capital vs Income: Understanding the Distinction

Effective planning starts by categorizing your assets into capital and income. This classification is crucial for comprehending how SARS and the South African Reserve Bank (SARB) evaluate them. Transactions such as property sales and lump-sum withdrawals from retirement funds are regarded as capital, whereas earnings like rental income, dividends, or interest are considered income.

Additionally, SARS will assess the origin and compliance of your funds to ensure correct reporting. Misclassification could result in audits or denied requests for terminating tax residency, adding unwanted stress to your relocation.

Offshore Transfers: Differentiating Capital from Income Funds

Note that the single discretionary allowance (SDA) of R1 million, which South African residents can transfer abroad in a calendar year, is unavailable to non-tax residents. For non-residents, all capital transfers to offshore accounts must obtain a SARS-approved international transfer (AIT) tax compliance status (TCS) PIN. In contrast, income transfers to offshore accounts do not require SARS or SARB approval for amounts below R10 million. A yearly good standing TCS PIN will be needed to verify your tax compliance status annually.

Moreover, expatriates are allowed to maintain South African assets such as properties, investments, policies, and trusts until they choose to transfer proceeds offshore or for as long as they wish.

Retirement and Pension Products

New regulations, which came into effect in March 2021, restrict access to retirement and pension funds. To withdraw these funds, individuals must remain non-residents for at least three consecutive years following cessation.

Authorized dealers (banks) may require additional source verification documentation before facilitating the transfer of these funds to an offshore account.

Inheritance Funds

Inheritance funds valued below R10 million can be transferred offshore without needing approval from SARS and SARB once the estate is settled. For benefits exceeding R10 million, an AIT TCS PIN or a manual compliance letter will be required if the individual is no longer registered with SARS.

Unlisted Shares

As a non-resident, the SARB permits unlisted local shares to be categorized as non-resident assets. Proceeds can be transferred offshore without requiring an AIT TCS PIN from SARS or any SARB approval. Furthermore, dividends from these shares can be sent offshore without needing clearance.

Opting to terminate tax residency and moving funds can be daunting due to numerous legal and compliance obstacles. Seeking professional advice ensures that your transition abroad is smooth and minimizes unnecessary risks. Experts in expatriate tax and compliance can offer clarity, enabling you to concentrate on your new journey while enjoying the benefits of the assets you’ve amassed over time.

Lovemore Ndlovu is the head of SARB engagement and expatriate compliance at Tax Consulting SA.

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