Recent changes to the rules of emigrating from South Africa are a driving force behind the tax emigration of retirees and second-generation South Africans who have been living abroad for many years.
The increased number of tax emigrants he is dealing with are all expats who have been out of the country for some time, says Hugo van Zyl, independent tax and exchange control expert. They want to remove their SA administrative footprint.
He says he is currently dealing with estates where the parents died abroad, but their SA trust funds and the non-resident children’s inheritance is “stuck” in SA.
In the past the mere formal emigration reference number allowed the funds to flow.
Since March 1, 2021 a child with a South African identity document who has been living abroad for years has to follow a tax emigration process to receive and transfer their legacy.
However, a child who was born abroad can receive and transfer their inheritance without tax clearance or approvals from the South African Reserve Bank (Sarb), remarks Van Zyl. The Sarb rules distinguishes and discriminates between a foreign national with no SA ID and a foreign national with a SA ID.
Ernest Mazansky, head of Werksmans tax practice, says in terms of the old rules there were certain processes once emigration had been approved. These included the remittance of up to R20 million of capital per year per family unit by an authorised dealer with an ordinary tax clearance.
Sarb approval was required for all larger amounts, and then a more stringent tax clearance process was followed. Over and above that, income on SA assets such as interest, dividends on listed and unlisted shares, property rentals and annuities were allowed to be remitted on an unlimited basis.
However, from March 1 these rules changed. Now it is R10 million per person and not R20 million per family that can be remitted.
This means both spouses have to apply for tax clearance, even though the assets might be in only one spouse’s name, says Mazansky.
Sarb still has to approve all larger amounts with the more stringent tax clearance process, irrespective of the formal emigration status. In terms of the remittance of income on SA assets, this has disappeared. Where someone could remit annually, for argument’s sake R50 million of income, one will now have to get Sarb approval every year.
Mazansky says he has no problem if the new rules are applicable to people who emigrate after March 1, 2021. Rules change. That is life.
“I do have a problem if a person who emigrated years ago on a particular basis, and who planned their financial life based on a set of rules, now finds the rules being changed for the worse.”
He sees no reason why, for people who emigrated before March 1, the old rules should not continue to apply. They are certainly less cumbersome than the new rules.
“It is here that I wonder if there might be room for a court challenge by someone who is of the mind to exercise their rights.”
Mazansky says there may be a possibility that income from SA could again be remitted on an unlimited basis, but there is nothing “concrete” yet.
Van Zyl, vice-chair of the South African Institute of Tax Professionals’ personal tax work group, says they are noticing an increase in “pre-legacy planning” where South Africans are donating their SA assets to their children living abroad while they (the parents) are still alive.
He says many South Africans formally emigrated from SA years ago, when their children were still minors. Before the new rules the children were able to obtain their inheritance without a tax clearance.
Now, even if they emigrated with their parents they have to open a rand account and the capital that was inherited must be deposited into that account. The beneficiary of the inheritance needs to get a tax number to get tax clearance, despite the fact that they were never the taxpayer.
In terms of the pre-legacy planning, parents are starting to donate their SA assets to their children abroad. Either the parent or the child obtains tax clearance, and they pay donations tax.
The children now own the assets which removes the need to pay capital gains tax on death, estate duty, executor fees, and allows them to immediately dispose of unwanted assets.
“Any estate practitioner will tell you that to obtain a local death certificate of a South African that died abroad, and the registration of a local estate for a foreign resident, is a nine to 18-month challenge.”
Expats are keen to pay the tax now to remove their administrative footprint in SA as they consider the South African bureaucracy the worst on the continent, says Van Zyl.
“Tax revolt is not about refusing to pay tax; it is about refusing to pay tax for a collapsed public service,” he says.