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I’m emigrating, what happens to my provident fund?

I can't decide if I should invest it here in SA, or overseas, and I don't know what the tax implications are….

Q: I’m 31 and planning to move to Ireland in the next few months, so I need to decide what to do with the money ( R550 000) in my provident fund. I can’t decide if I should invest it here in SA, or overseas, and I don’t know what the tax implications are if I do decide to invest it overseas. I’m not planning to return to SA, so it makes more sense to invest overseas, I think? If so, where do I start?

 

Dez Tswaile - Masthead Financial Planning

A: Considering that you are not planning to return to South Africa, I will assume that you are formally emigrating or at the least considering a formal emigration. An emigrant is subject to the same legal requirements; to the extent it is relevant, as a traveller leaving the Republic, therefore you would have to declare all your financial possessions including your liabilities before leaving with the relevant authorities including, but not limited to the South African Revenue Services (Sars), the South African Reserve Bank (Sarb), etc.

One of the reasons why I would encourage you to opt for the formal emigration is to avoid any potential future complications in reference to your annuity income in a foreign country. Most countries impose tax on the worldwide income earned by a resident of that country and on income earned by non-residents on locally-earned income. Therefore, someone could be double taxed because they could be taxed in the country of residence as well as in the country where the income was earned.

Certain countries have agreements to avoid double taxation. Normally these agreements provide that income of a certain nature will be taxed only in one of the two countries or may be taxed in both countries and the country of residence will allow a credit for the tax which has been imposed by source country. South Africa has agreements with a number of countries to prevent double taxation of income, subject to future change in relationships between the countries and legislative change.

Where to start

  • Make a formal application to the Sarb and get tax clearance with Sars. With tax clearance in hand, you can then submit your application to the Sarb to change your status to non-resident.
  • Withdraw your assets. Once you have been approved by the Sarb for financial emigration, you would need to open a non-resident bank account. Proof of this account is needed for the repatriation process as to ensure that all exchange control regulations are complied with. At this point, you can now apply to your financial provider (provident fund) to withdraw your pension provisions/ benefits. This withdrawal is subject to tax and the financial provider will have to apply to Sars for a tax directive.
    Sars will approve the application and confirm the amount of tax to be deducted from your provident fund before withdrawal. (Considering your R550 000 amount and also your age, only your first R25 000 will not be subject to tax and the balance will be subject to an 18% tax on all amounts in access of R25 000, as per the current withdrawal benefit tax table. Remember that you are still legislatively allowed to access all your financial benefits within your provident fund).
  • Transfer your funds offshore. Transfer all your funds into the non-resident account that you would have opened. As soon as the bank gives the all-clear, you can transfer the released funds into your bank account in your new country of residence. These funds can then be used as you wish – many people for example, reinvest it in a scheme in their new country of residence subject to their own rules and legislative requirements.

How long does the financial emigration process take?

Estimated turnaround time, from submitting your documents to accessing your funds, could well be six months – barring any unforeseen circumstances of course. As a guideline, the timeline goes as follows:

  • One to two months for you to complete the required paperwork and send all the documents through.
  • Two months for Sars and the Sarb to approve your tax clearance and financial emigration applications. If your tax affairs are not up to date, then this will take longer.
  • Two months to finalise the withdrawal of your funds.

 

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