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Emigration to be based on tax residency test from next year

But draft legislation needs more clarification.
Anyone planning to access their retirement savings to fund the offshore move will have to wait three years. Image: Shutterstock

The three-year residency test replacing the emigration process recognised by the South African Reserve Bank (Sarb) for exchange control purposes has been met with some confusion and suspicion.

The phasing out of emigration for exchange control purposes forms part of the modernisation of South Africa’s exchange control regime. Finance Minister Tito Mboweni announced in February that a new capital flow management system will be put in place. All foreign-currency transactions will be allowed, except for a risk-based list of capital flow measures.

The formal exchange control emigration process will be replaced by a proposed tax residency test that will apply from March 1, 2021.

Read: Emigration: The costs of leaving South Africa

This means that if a South African wants to emigrate after that date, they will have to remain outside the country for three consecutive years or longer in order to prove that they are non-tax resident.

In terms of the proposal they will only be able to exit their retirement funds in full after the three-year period.

The Income Tax Act provides for a payment of lump sum benefits when a member of a pension preservation, provident preservation or retirement annuity fund withdraws from the fund when emigrating through the Sarb process.

Read: Emigrating? Make sure you level with the taxman first

Ruaan van Eeden, tax consultant at Investec Advisory, Tax and Fiduciary, says it is unclear, from a policy perspective, what the purpose of the three-year period is.

Draft legislation open to interpretation

“The current draft legislation also refers to three consecutive years, which can cause subjective interpretations. What if someone enters the country in that time due to an emergency?”

Van Eeden says the draft legislation needs more clarification. “As the legislative process unfolds and people are given the opportunity to comment, I believe there will be objections to the three-year rule. It may also become clearer what the intention behind the rule may be.”

South Africans who have been living and working abroad for several years and have ceased to be SA tax residents will be in a better position. They will be able to access their funds from March next year, without going through the current emigration process. However, they will have to prove to Sars that they have been non-tax resident for three consecutive years or longer.

Read: To financially emigrate or not?

Van Eeden, who is a member of the tax administration working group of the South African Institute of Tax Professionals (Sait), says in most cases people need access to their retirement funds in order to fund their offshore move.

“If you are not financially strong enough to support yourself without the injection from your retirement fund, a three-year wait could potentially be quite material from a financial perspective.”

Sait CEO Keith Engel says a better test may be the “sooner of” three years or proof of tax residency elsewhere.

Slow move from control to surveillance

Bernie Herberg, director in the relationship management division of Stonehage Fleming (an international family office), says South Africa has been moving slowly from a point where (exchange) control is becoming surveillance.

He says that with the amendment to the foreign income tax exemption that came into force in March, a large number of South Africans decided to emigrate.

Only R1.25 million of a South African tax resident’s foreign remuneration is now exempt from tax.

“That caused a large number of emigration documents flowing past the Reserve Bank, because those who have been living and working abroad formally emigrated,” says Herberg.

South Africans who have been considering emigration may experience hardship if the draft legislation goes through in its current format, especially those with lower asset values.

“It think there will be considerable pushback against the three-year period, and it may be reduced,” says Herberg.

Van Eeden says the thinking may be that three years is seen as the “line in the sand” which shows a bit more “permanency” and “longevity”.

Herberg says there is a fear that Regulation 28 of the Pension Fund Act may be amended and that people will not be able to externalise their retirement funds before it happens.

The regulation currently limits the extent to which retirement funds may invest in particular asset classes. Persistent rumours are that government wants to amend the regulation by introducing prescribed assets, forcing retirement funds to allocate a portion to government-backed assets (such as state-owned enterprises) or to invest directly in government infrastructure projects.

Listen: The ANC’s Enoch Godongwana tells Ryk van Niekerk changes to Regulation 28 are still in the ‘investigation phase’

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Before the usual commentary fills this page, it is important to note that this simplified process is going to cut out middlemen, who will do whatever it takes to cash in.

It’s also important to note that being able to withdraw one’s retirement savings early while remaining a citizen is not something that’s universally available to citizens of other countries who emigrate.

Here is the usual.

Take your money as quick as you can and get it out. This lot will not rest until you are in the gutter.


i am glad you are not my emigration adviser.

A friend of mine followed your advice.
He left SA 20+ years ago, stacking all his money in a backpack, no tax clearance, no emigration papers etc. Guess where he is now. You are right as he is ‘in the gutter’ in a foreign land and unable to face his relatives in SA.

Dss ….”universally”

Are you the type in everyday conversation that repetitively uses the word “apparently”?

The comment moderation on this site was quite good for a while…not any more.

I agree, Dss. The moderators now allow you to annoy readers with your sycopanthic comments.

People should have the ability to transfer their pensions to their new country of residence without getting hammered in tax as at present. This has been around in the EU for some time where you have freedom of movement of capital which includes your pension funds.

This would make life a lot simpler as retirement funds can retain their very purpose and the member can actively avoid future liability mismatching. This could also be avoided by removing the Reg 28 restrictions so the member can invest where and in what they want. But pigs would need to fly first.

I agree , but the laws of all countries (old + new) are to be respected.

Even first world countries ‘double tax’

Agree that making pensions portable would be great, but it would require a large degree of coordination between countries..just transferring from one retirement fund to another in SA is a nightmare.

@Dss. “…going to cut out the middlemen”?

No problem….can we thus refer (for free) the rising queries from confused/uncertain Saffas/expats, regarding this complex tax issues, to you instead? 😉

(…so that we can focus on other pressing client tax matters)

Sure, it will cut out the “financial/formal emigration” peddlers from Mar 2021, but believe me, expat related tax affairs doesn’t end there.)

If you don’t understand (and this probably applies to 90% of Saffas who emigrate) the complex laws governing emigration – consult a lawyer. I cannot understand your argument unless you are trying to commit crime, by disclosing fraudulent info on migration forms. So simply — consult a lawyer and pay his bill to ensure things are done legally.

Furthermore this legislation only affects 1 in 20 emigrants and is irrelevant to most of us as we only have 2c in our retirement funds.

The lesson is crystal clear. Find another way outside pension and retirement funds to provide for your retirement. If you have a retirement fund, find a way to cash it in completely now. The tax savings now are not worth the hassle of ever increasing government control, interference, corruption and greed.

Noted / agree.

I can add that if 55-age is reached, nothing stops a person (or expat) to “retire” from the fund (take 1/3 cash, and bite the lump-sum tax bullet), and draw max 17,5% rate on the two-thirds compulsory annuity to deplete fund over a shorter period of time.

(…and apply discipline, not to spend the excess income for the first few years, but to transfer bulk out of SA, after-tax)

Again, bite the painful annual tax bullet for the next few years based on higher Income Tax from that max 17,5% drawdown….as you NEVER KNOW HOW HIGH individual tax could rise into SA’ long-term future.

I am glad you are not my advisor!!

If you studied the different countries response to COVID-19, you would have noticed that the ‘action plan’ is consistent from Africa to Europe to Australia etc….i,e
– wash hands,
– exercise social distance
– quarantine/isolate if you feel sick.
– etc.

The point..The laws in SA are the same (and sometimes more advanced) than countries across the globe (even first world countries)


Can’t we just go and live on another planet!

Maybe you can give Elon Musk a call, last I heard he wants to do exactly this.

Well well, I guess the ANC have some long term planning skills after all. Who would’ve thought they saw that the funds for looting is becoming less each year and that they through legislation have to keep those funds of people emigrating here as long as they can in order to maximize the looting opportunity.

I will be starting the emigration process as soon as the COVID madness subsides, so ANC you may try and keep my funds here as long as you can. But ultimately you will still lose, for couple of years now I have kept my forced and unwanted pension fund contributions on the minimum (foregoing the tax benefit) and sending as much money directly overseas out of reach of your filthy hands. So all I have left in SA is my fixed assets, pension funds and couple months’ salary in my current account.

….the ANC is cleverly fencing off the pensions ‘rooster cage’, to provide the jackal an easier feast come nightfall.

We’ll need to apply the ‘financial planning exit strategy’ -equivalent to that of the prepared farmer with a .22Magnum rifle with night scope…..

What are you talking about?

You are living in the wrong world.


*lol* You need to aim the rifle at the jackal.

I prefer my world. Your world must be under the burden of the socialist ANC.

And you complain about criminality………

And? Unlike the ANC government and cronies, I actually abide by the law. Nothing I mentioned is against the law. Last I checked emigration is legal, moving funds overseas with SARB approval is legal and last I checked we still have some semblance of freedom of speech for me to criticize a proven corrupt government.

Unless you feel differently and actually think this government does not have ulterior motives in trying to keep pension funds as long as possible in SA?

For some context: people can withdraw (and receive a lump sum, net of tax) from their pension/provident preservation fund at any time, provided they have not already made a previous withdrawal. So they can simply make that withdrawal before applying for emigration.

Those belonging to a workplace pension/provident fund can also simply resign from their employer/fund and receive a lump sum benefit.

In the past, the only pre-retirement money that was ‘locked up’ in SA was pension preservation fund money that had already been accessed once before (and therefore subject to annuitisation) and RAs (also subject to annuitisation). But RAs could be accessed earlier as a lump sum on financial emigration, and as a preservation fund can be transferred to an RA, there was a way around this.

So this 3-year restriction would effectively only apply to these two groups: RAs and preservation fund money already accessed.

Even if someone had already accessed their preservation fund, but still belonged to a workplace pension/provident fund, they can transfer that preservation fund money to their workplace fund, and then access that money on resigning from their employer. So even this restriction can be avoided.

The point is, this proposed 3-year rule would only restrict people in very specific circumstances (which makes it even more arbitrary).

What does this three year rule have to do with “tax residency”? They are going to confuse issues again. You can become non resident for tax purposes virtually overnight. No home here, no kids at school, no local business, have established a home/business elsewhere, have permanent residency elsewhere, done. (note: not all needed, just examples)

In that status you can still visit your friends and family in SA every now and then.

Agree Johan. The ANC, as we’ve learned with their arbitrary Covid-19 rules, they are the unintentional MASTERS of CONFUSION (…the same way this 2020 Filing Season commenced.)

No, this 3 year rule does NOT determine your tax residency.

I think what govt is trying to say, is once an expat becomes a tax-resident of another country (based on the existing Ordinarily Residence Test & secondary Physical Presence Test), then after 3 years “waiting period” (almost like med aids.. 😉 of being a non-resident, then you can apply for ret fund withdrawal from SA.


Thank you, Reggwat, for at last admitting you are clueless. Here on Moneyweb people try to give sensible comments and even advice, not bring up fiction like your backpacked “friend in the gutter after 20 years.” If you do not see on what disastrous route we are, you are probably a member of the utterly useless cabal masquerading as a government.

End of comments.





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