Many people are despondent about the situation in SA. While I believe it is still the best place to live, I understand that there are many risks and concerns. Today I will cover a few of the questions about emigration that most frequently come across my desk.
- What is the difference between formal (financial) emigration and informal emigration?
Formal emigration, as the name implies involves formal approval from both the South African Revenue Services (Sars) and the South African Reserve Bank (Sarb). Formal emigration is an onerous process, with your bank playing a big role in managing any remaining South African assets during and after the emigration process. Once you comply to all the requirements, you are no longer classified as a tax resident in SA, but to maintain this status you may not spend more than 91 days in SA per annum over six years, or more than 915 days in total during the first five of the six years. So, there is no loophole to avoid tax in SA just by emigrating on paper.
We find that most people do not go through the formal emigration process. Informal emigration is the process of moving funds offshore and possibly also applying for a “golden visa” from a foreign country that will allow you to reside in the country for an extended period of time. You may still live in SA and will remain a taxpayer in SA but have the ability to move offshore at short notice. This is a good way to keep your options open towards a quick physical exit from SA, if ever necessary.
Many countries allow foreigners to “buy” residency in the country via investment. This may be an investment in fixed property, government assets or any combination of investments, depending on the country. Each country will have its own visa program with specific requirements for investors to comply with in order for them to gain a passport for that country. Residency may eventually be followed by citizenship in the country, should you comply with all the requirements.
- I’m emigrating in a year or two. What should I be doing now?
You can start moving your investments offshore long before you leave the country. An SA citizen may take up to R11 million offshore per year, subject to tax clearance from Sars. The clearance is a formality and will generally be granted to any person whose tax affairs are in good standing with Sars. Speak to your advisor about your specific needs – will you have a job when you arrive, or do you need access to your investments to live off in the first few months, etc?
You can open your offshore bank account in the meantime and start exchanging some rands for the local currency offshore as and when the exchange rate is favourable. That way, you will have free cash available for living expenses when you arrive.
Many investors are eager to buy a home in the country they are moving to before they leave. While this may feel like a nice security blanket (“at least I’ll have a roof over my head”), we generally recommend that you hold off on that for a while. You may buy that flat in London just to find that all the jobs are out of the city.
- How much can I take with me?
This depends on whether you formally emigrate (i.e. register the emigration with Sars and Sarb), or just move offshore. As mentioned before, most people do not formally emigrate. If you just move offshore without registering your emigration with Sars and Sarb, you will be subject to the foreign tax allowances of R11 million per year.
Moving your retirement fund offshore will be a large component of your planning. Amendments to the tax law will take effect next year. After 1 March 2021, getting all your funds out of your retirement fund could be tricky.
If you are younger than 55 and have never taken a withdrawal from a fund before, you can withdraw your full benefit, subject to tax on the withdrawal. Sars will allow you R25 000 tax-free. Individuals are only allowed one withdrawal from their preservation funds in their lifetime. If you have taken yours in the past, but now want to cash in the balance of your benefit on emigration, you will have to prove to Sars that you have been a non-resident for an uninterrupted period of three years. So, you cannot plan on living off these funds when you arrive offshore – it will be stuck in SA for three years.
If you want to pay less tax, you are happy with your current investment portfolio and you don’t need the cash immediately, you can wait until you reach age 55, at which point you may retire from your retirement products and receive up to R500 000 tax free. In this case, members of a pension fund or retirement annuity must understand that they will only be allowed to receive 1/3 in cash. The balance must be used to buy an annuity, which may be transferred to your offshore bank account. You also need to keep in mind that any rand depreciation will reduce the final amounts you have available in foreign currency, once you retire. This is a viable option if you will still have expenses in SA after you leave, but not necessarily practical in other cases.
- How do I get it there?
This is the easy part. Moving funds (whether we are talking about investments or cash to your bank account) is no longer the drawn-out, complex process it used to be. There is a multitude of currency brokers available who can assist you with this. We recommend that you shop around and negotiate for the best exchange rate. Be careful when you compare rates and fees – unfortunately, the forex industry does not have standardised language that makes it easy for you to understand how the fees are calculated. Some brokers will wrap all the fees into the exchange rate and tell you that there are no fees. This is NEVER true. The difference between the exchange rate they offer you and the “live” rate (if you compare it to a website like xe.com) will be quite big. Other brokers will have a much better exchange rate but charge some fees separately. Remember that exchange rates change every second. It does not make sense to compare a rate from one provider now, with a rate obtained from another yesterday. To compare apples with apples, ask the provider to express all costs that are wrapped up into the exchange rate as a percentage.
- What else should I be thinking of?
Make sure you understand the local tax legislation and quirky regulations of the country you are moving to. In the UK, it is illegal to drive/own a vehicle without a minimum level of insurance. n many countries the tax rate might look quite low, but there are several other deductions from your salary like levies for medical expenses as one example. You need to understand these compulsory costs and budget for them. If you already have employment, ask them to generate a dummy payslip for you in addition to your employment contract. This will ensure there are no surprise deductions.
You will need to have a will drafted in your new country. It is a good idea to contact lawyers in your destination country before you leave SA to start the process. They will prompt you to finalise the will at the right time once you are settled in. This is something that many of us forget to pay attention to in general wherever we live, so use the big life event as a catalyst to make sure you get your affairs in order.
We do not recommend that you close your local bank accounts for quite some time after you leave. You never know where life can take you – you may get homesick and change your mind. SA investment companies will not be able to pay proceeds from local investments in foreign currency, so if you don’t manage to move all of your investments offshore before you go, you will need an SA bank account to receive withdrawals from investments in SA, which can then be transferred offshore.
It all may sound daunting, but if you ask your advisor for some help, the most difficult part to plan will probably be the going away party. Enjoy the adventure!