Despite some blonde global leaders recent efforts, the world is more open to emigration than ever before, capital knows no borders, and it’s increasingly common for the members of a mid to high-income South African family to be scattered around the globe. From the young professional working in Dubai for a few years before returning home, to the family planning a permanent move to Australia or the UK, to those retiring abroad, migration has become a fact of life.
As a result, our family office is receiving more and more queries about the tax and financial implications of emigration and immigration. In this article, I will address a few of the most common questions our clients ask us about taxation and migration, with the caveat that the circumstances of each family or individual will be different, and that you should seek advice from a specialist before making any decisions.
How does formal emigration affect my South African tax status, citizenship and my right to reside in SA again?
Formal (or financial) emigration is an administrative process that involves seeking the South African Reserve Bank’s (SARB) approval to become classified as a non-resident in South Africa for foreign exchange purposes ONLY. Formal emigration enables you to externalise inheritances, retirement funding, and other trapped funds. Although a tax clearance certificate is required in order to formally emigrate, that in itself does not change your tax status. Neither does it constitute a sign-off that all your tax affairs in South Africa and your tax obligations in regard to the (potential) termination of your tax residency have been complied with.
The emigration process does not affect your status as a South African citizen or your right to reside in South Africa. However, it’s important to remember that SARB will deem returning to the country less than five years after formal emigration to be a failed emigration. This may open you to having to repatriate funds taken abroad as part of the emigration process.
My adult children live abroad but have not formally emigrated. I have transferred some funds to an offshore bank account using my allowances. Can I give some of my money to them as a donation?
You may not donate or lend funds you have externalised to another South African who still has foreign exchange residence in South Africa. You would need to donate the money to them in a South African bank account, and they would need to externalise the funds using their Single Discretionary Allowance or Foreign Discretionary Allowance. However, you can donate or lend such funds to offshore recipients who have formally emigrated.
I left the country many years ago, but never formally emigrated. What is my Exchange Control status?
If you moved abroad, but never went through the formal emigration process with SARB, you are regarded as a South African temporarily residing abroad, for Exchange Control purposes. Some of the implications of this include the following. You may not remit an inheritance from South Africa, other than through your Annual Discretionary Allowance or Foreign Investment Allowance. If you no longer have a South African bank account, tax number or valid South African ID document, it will be very difficult (if not impossible) to repatriate the inheritance without emigrating. A similar situation applies to retirement funds left behind in South Africa.
I didn’t apply for dual citizenship – do I still have the right to renew my expired South African passport?
You may need to apply for dual citizenship in order to retain your right to a South African passport. Be aware that Home Affairs will have a record of your previous South African passport on its systems and may seek to prevent you from entering and exiting South Africa on your foreign passport.
Are my retirement annuities and living annuities trapped in South Africa if I have emigrated or do so in the future?
You can only access the full amount of your retirement annuity funds before retirement through triggering the process of financial emigration and settling the resulting tax account with SARS. We recommend assessing when you plan to retire and the size of your retirement savings (among other factors) to determine whether it is optimal to emigrate formally or whether you should simply wait until retirement age to get access to the funds.
If you formally emigrate, you can access your retirement funds and externalise what’s left after SARS has taken its share. If you wait for retirement, you can take a third of your funds as a lump sum; the balance must be invested in an income/annuity product. If your retirement fund amounts to less than R247,500 you may take it all as a lump sum.
We are able to invest your living annuity funds into offshore funds, but the vehicles are based in rands, the income or annuity is taxable in South Africa (other than in special circumstances where a directive may be obtained), and the products are subject to local foreign exchange regulations, which could change in the future. So, it all comes down to making a trade-off between the tax liability you may face, the flexibility you are seeking, and the size of your retirement in relation to the rest of your investment portfolio.
What do I need to know about the treatment of trusts in various jurisdictions such as the US, the UK, Israel and Australia?
The treatment of trusts and the tax on distributions from trusts differs significantly from country to country. With beneficiaries – usually the children and grandchildren – scattered all over the world, understanding the tax implications is critically important. For example, distributions to a US or UK person from a foreign trust could be so punitively taxed that it may be advisable to collapse the trust.
This demands detailed specialist advice on a case-by-case basis. Our role is to understand each family’s needs and situation and help put the optimal structure in place to avoid any unintended and potentially disastrous tax consequences. We are also here to assist clients move through the regulatory processes so that families can correct some of the oversights of the past. For further information on the validity of trusts, please see our other article.
*I will be delving into some of these topics in more detail in this series of articles in the months to come.