The decision to financially emigrate from South Africa should never be taken lightly and should only be pursued if your circumstances warrant it. It is a lengthy, laborious and admin-intensive process that has far-reaching consequences which should be fully understood before proceeding. Financial emigration should not be confused with emigration and it is important to understand the difference at the outset.
Financial emigration versus emigration
If you physically emigrate from South Africa to work and live abroad, but do not notify the South African Reserve Bank (Sarb), you are considered to be a South African resident living temporarily abroad. You will remain a tax resident of this country and will be subject to the tax laws and financial regulations of South Africa. Financial emigration involves changing your status with Sarb to that of non-resident and receive a tax clearance certificate to permit your financial emigration. Whether you emigrate physically or financially, you are not required to give up your South African citizenship nor your identity as a South African. You have to actively relinquish your South African citizenship in order for this to happen. If you emigrate financially, you are permitted to come back to live and work in South Africa, but it is important to note that there are financial consequences if you return within five years of your financial emigration. This is deemed a ‘failed emigration’ and you will not be refunded any capital gains tax you paid on the deemed sale of your assets when leaving the country.
Reasons for financial emigration
Whether or not to financially emigrate depends entirely on your circumstances, the nature of your assets, and what you intend to achieve by undergoing the process. If you are unsure whether you are going to live and work permanently abroad, then it is not advisable to financially emigrate until you have more certainty regarding your future. On the other hand, if you are sure that you will not be returning to South Africa and have retirement funds that you need to access, then financial emigration may be something to consider.
Every South African has access to a R1 million per adult and R200 000 per child single discretionary allowance, which is not subject to Sarb approval. In addition, South Africans are provided with a foreign capital allowance of R10 million per adult or R20 million per family per calendar year, although this is subject to Sarb approval. If you intend to financially emigrate, you are permitted to export your household goods with a total insured value of R2 million. With respect to your remaining assets, these must be brought under the control of the bank that finalised your emigration, where all liquid assets will be placed in your capital account. To the extent that your remaining liquid assets exceed the foreign capital allowance limits, you are permitted to request that the Financial Surveillance Department transfer these assets.
The financial emigration process
In order to embark on the financial emigration process, you will need to partner with an authorised South African commercial bank to assist you with the process. The first step is to complete an MP336(b) form, which you will need to submit to your bank together with a tax clearance certificate, certified copies of your ID, passports and birth certificates, and a letter of confirmation, bearing in mind that your bank will likely charge a fee for submitting this application. You will also need to provide your certificate of citizenship, naturalisation or permanent residence in relation to the country you are moving to, as well as original title deeds pertaining to fixed property. This process normally takes about 6 – 8 weeks to complete.
Thereafter, you need to apply for an emigration Tax Clearance Certificate from Sars. When applying for your emigration tax clearance, you will need to include a statement of assets and liabilities for the previous three tax years, and a capital gains tax calculation on the deemed disposal of assets on the day before you cease to be a resident. You will also need to include details of all your retirement funds, insurance policies, trusts, business interests, loans, donations, inheritances, property and income.
Property remaining in South Africa
In respect of property that you have not sold and still own in South Africa, these will form part of your blocked assets and must be listed. Your bank will keep these title deeds, together with copies of any rental agreement or bond information, in safe custody. Where you continue to hold shares in South Africa, you will need to hand over all original certificates or scrip account statements for keeping in safe custody. Any cash held in South African financial institutions that does not form part of your single discretionary or foreign capital allowance must be transferred to the authorised bank dealing with your emigration where it will be held in your capital account. Your other bank accounts must be closed.
If you have trust interests, the full capital value of the trust must be included in the MP336(b) form, together with a copy of the trust deed or will in respect of a testamentary trust, the list of trust beneficiaries, and the audited financial statements for the previous three tax years. In respect of any other property owned by the emigrant, the documents of title in respect of these – such as vehicles, pension payments, household effects, jewellery – must be placed in safe custody. Once all your remaining assets have been brought under the administration of your authorised dealer (bank), you can apply to the Financial Surveillance Department to transfer your remaining liquid assets to the extent that they exceed your allowance.
If you are a member of an approved retirement fund, such as a pension, provident, preservation or retirement annuity fund, you may be permitted to access the full amount in your fund prior to the age of 55 if you emigrate financially. You will therefore need to seek Sars approval and ensure that your tax affairs are in order. Bear in mind that any withdrawal you make from an approved retirement fund will be subject to tax.
Living and life annuities
Living annuities are not regulated by the Pension Funds Act and, because they are post-retirement investments, you will not be able to withdraw the funds. Generally speaking, your living annuity will continue to pay into a South African bank account, following which you can transfer the income offshore. A living annuity income cannot be paid directly into an offshore bank account. Similarly, the guaranteed income from a life annuity can be paid into a South African bank account and then transferred offshore.
Financial emigration does not mean that you stop paying tax to Sars. You will need to continue submitting annual tax returns to Sars, although you will only need to declare income that is sourced from this country, such as living annuity income or rental income.