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Treasury tightens the noose on emigrants’ retirement assets

Treasury proposal to include an emigrant’s SA retirement funds within the net of assets subject to exit tax is problematic.
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The Budget Review 2021 includes a proposal to impose a deemed retirement withdrawal tax on retirement assets of emigrants as an exit tax. The proposal is unclear and has numerous issues.

Data from various sources suggests that around 23 000 South African tax residents emigrate each year in search of greener pastures. Individuals who cease to be tax residents currently pay an exit tax on their worldwide assets, with certain exclusions. At present, immovable properties and retirement funds that remain invested in South Africa are excluded from the exit tax net.

Deemed retirement withdrawal tax on the day before exit

National Treasury proposes in the Budget Review 2021 (Budget) to include the SA retirement funds of an emigrant within the net of assets which are subject to an exit tax.

Emigrants will be deemed to have withdrawn from their retirement funds in full on the day before they cease to be SA tax residents, which will result in a deemed retirement withdrawal tax (RWT).

There is no effective date mentioned in the budget.

Prevent loss to the fiscus

The purpose of the proposal is to address the loss to the fiscus when an individual has emigrated to become tax resident in another country, eg, the United Kingdom (UK).

The double tax agreement (DTA) between South Africa and the UK provides for the UK to have sole taxing rights on the SA pensions and annuities of the emigrant. This means that the SA pensions and annuities received by the emigrant who has become UK tax resident would not be subject to tax in South Africa, only in the UK.

Other countries with similar sole taxing rights in their DTAs with South Africa include Australia, New Zealand, People’s Republic of China, Hong Kong SAR, Denmark, Germany, Italy, Portugal and Spain.

Payment of the RWT plus interest deferred

National Treasury proposes that payment of the RWT plus interest “will be deferred until payments are received from the retirement fund or as a result of retirement.”

This proposal is unclear but appears to suggest that the RWT plus interest will be withheld against actual payments received by the emigrant in the future from the retirement fund. (An actual payment could be received due to an allowed pre-retirement or retirement election, a divorce settlement or on death.)

Impact of RWT and interest as tax credit unclear 

The proposal then continues to state that “[A] tax credit will be provided for the deemed retirement withdrawal tax as calculated when the individual ceased to be a South African tax resident.” This proposal is also unclear.

What would the RWT plus interest be a tax credit against?

The emigrant is now tax resident in a country which has sole taxing rights on the SA pension and annuities. South Africa has no right to tax the pension and annuities. There is no SA tax to credit against.

Some DTAs provide for South Africa and the new country of residence both to have taxing rights on the SA pension and annuities. These countries include Canada, United States of America, Netherlands, Singapore, Qatar, Mauritius, Kuwait, United Arab Emirates, Saudi Arabia, Sweden and Switzerland. This usually means that the SA pensions and annuities will be subject to tax here as normal, and any SA tax paid is a credit against any tax due in the new country of residence.

If South Africa has not lost the right to tax the pensions and annuities in the DTA, then there is no need for the RWT in the first place. If the retirement assets grow at a consistent rate, there would be higher amounts of tax to be collected by Sars on retirement or when paid on death or divorce after emigration. There is no loss to the fiscus.

Interest allowed to accrue unfettered to reduce retirement balance

Capital gains, interest and dividends on retirement funds are not subject to South African tax in the hands of the retirement funds. This is based on the policy that the funds should be allowed to grow their asset base as much as possible to provide maximum value on retirement when such amounts are taxed.

The proposal will erode the asset base with a deemed interest on the RWT. This could be interest accruing over long periods until retirement. A significant portion of the retirement funds of the emigrant would not be used for retirement but to pay the RWT and interest. This runs counter against the policy to encourage retirement savings in South Africa generally.

Potential nil retirement balance remaining on retirement

What happens if the RWT plus interest exceeds the value of the retirement assets on retirement? This could be due to the “associated interest” on the RWT or a significant decline in value of the retirement funds after emigration. On retirement, the emigrant would have to pay the shortfall in RWT and interest and would have nil value remaining as pension or annuities.

MAP is a potential remedy

The mutual agreement procedure (MAP) is a remedy in a DTA for the revenue authorities of both countries (e.g. Sars and HMRC) to interact with each other to resolve international tax disputes.

Where there is foreign tax imposed on foreign income, a SA tax resident can claim the foreign tax as a credit against SA income tax if the foreign tax is validly imposed. A foreign subsidiary may deduct withholding taxes against fees paid to a SA parent entity in terms of their tax rules. We have seen Sars disallowing the foreign tax credit claimed by the SA parent entity on grounds that the withholding taxes were not validly imposed in terms of the DTA.

In our example above, if the HMRC holds the view that the RWT plus interest cannot be validly imposed in terms of the UK / SA DTA, there could be double tax on the SA pensions and annuities received by the emigrant. The HMRC would not give a credit for the RWT plus interest against any UK income tax due.

A possible remedy for the emigrant would be to refer the issue to MAP and for the HMRC and Sars to discuss the validity of the RWT plus interest.

This could take years to resolve. In the interim, the UK retiree would be without any pension or a significantly reduced pension due to the RWT and interest, plus any UK tax.

Interest over the three-year wait

Recent amendments effective 1 March 2021 affecting preservation and retirement annuity funds provide that an emigrant can only access these funds after three years of ceasing to be a SA tax resident.

The proposal means that the emigrant will now also be liable for the RWT plus interest over this three-year wait, which will further reduce the value of the retirement balance.

Another reason to withdraw

We hope that many aspects of the proposal which are unclear will be clarified in the draft tax bill circulated around mid-2021. We will submit our comments in due course.

The proposal may result in emigrants electing to withdraw their SA retirement funds in full where possible and to pay any SA tax due as the risks of leaving these funds to grow in SA until retirement are too uncertain.

The fiscus will receive some tax immediately. However, the withdrawal is an overall loss for the economy as the pool of retirement funds in SA will reduce and the tax base on any growth of the funds had they not been withdrawn will be gone.

Joon Chong and Wesley Grimm, Webber Wentzel


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We are going to be forced to do a Gupta.
Cash in, convert to gold and fly it out from a barely used airstrip.

I’m always so amazed how the government is in a constant state of worry to the point of anxiety from a small group of people.

South Africans should try by any and all means possible to get out of SA if not for themselves but for their kids too and take as much of their money as they can.

I left SA with just R200 in my pocket and 7 years worth of work experience, the reason for my success was due to BEE… I had to work 3 times as hard for the same recognition whilst earning half as much, BEE made me push harder.

This year I’ve finally saved up enough to pay for my own degree .

Here is some advice for those wanting to go.
Overseas countries love South African they consider us as Cheap Western Managers, make a decent CV and post it daily.
Check out LinkedIn for jobs
Use to study for free or pay for the certificates.
Go on FB and connect with South African Communities, there are 1000s of jobs available.

So true i wish my son would leave this cesspool before we become another Venezuela/Cuba .We are constantly having to subsidize inefficient entitled darkies and the ”islands of paradise” are getting smaller and fewer by the day. AMANDLA

I read this and just become ANTI!!!

ANTI everything with an anc connection.

Just a bunch of common thieves.

Racial spite.

They dont want elderly whites in the country, tell you to bugger off to Europe, but you cant use your own money to do so.

If you want to leave, you need to do it ASAP. SA is spiraling from one bad decision to the next. Hanging a sword over people’s heads is going to achieve the opposite of the intention

In defence of fixing this : it is silly that a local could get tax benefits from retirement contributions here for 30 years and then the UK taxes the pension after emigration. That is daft.

When one withdraws ones pension one pays punitive taxes. This is done to try and make people preserve their pensions when changing jobs. So the idea that a foreign company is getting an unfair advantage if a SA person takes their pension to that country is just a convenient fiction invented by treasury because a huge amount of tax is paid in SA prior to the money moving offshore. The true ideas behind this move is to prevent skilled and highly paid tax payers leaving, as it preserves SA’s skills and tax base.

I think a fair approach would be that the value of tax benefits and growth thereon were repaid to SARS.

It is nonsense that Johnny without a pension / RA that leaves must first pay deemed capital gains in his R10m share portfolio he built from after tax investing but Mary with a R15m pension fund (R5m extra courtesy of tax deductions) does not.

The reverse is also true, so swings and roundabouts..

@Johan: Retirement contributions plus average growth on those savings, even if tax savings are included do not result in any stellar investment performance. Then you get to use these retiremnt savings, which might appear substantial until you have to buy anything or go on an overseas trip. That’s when you see how the purchasing power has been diluted. And you still pay tax on drawing the pension you saved for.

No argument on that, my savings are maybe 10% in retirement structures. The rest is in assets, mainly business here and international equity.

If I were to emigrate ALL of those are subject to immediate capital gains tax.

As a pensioner, I need to leave as quickly as possible before the effective date.

Quote: “What happens if the RWT plus interest exceeds the value of the retirement assets on retirement?”

Well, that is exactly what EXPROPRIATION WITHOUT COMPENSATION is all about.

This is how Govt will implement EWC: through SARS. Exit tax for those who emigrate, and Administrative Penalties for any small transgression upon those who remains behind as tax-residents.

“Prevent loss to the fiscus”

Well IF the dear ANC had implemented the correct investor-friendly policies decades ago, in the interest to make SA attractive for incoming skilled workers (and direct foreign investment)…..the above-mentioned phase would not be necessary today in desperation.

Georgia, the ex-Soviet state north of Turkey, became a friendly, investor attractive country since the late 2000’s (with little corruption, low crime, and high up in the “ease of doing business” global rankings)

South Africa? Slowly into the opposite direction.

Where Georgia is emerging FROM socialism, SA is moving TOWARDS a socialist bureaucracy.

Exactly like two trains passing each other in opposite directions, with passenger staring out the windows. The waiving passengers on the Georgian train travel to Heaven in one direction, and the fear-filled passengers on Trainwreck-SA are traveling to….an Azanian hell.

SARS is the ‘de facto’ the EWC-arm of govt!

We took a holiday there, stop over in Dubai. Total Trip cost R20k per person for 7 nights. Had a total blast!!!

Setting up a bank account just show you passport and pay 11 Lari, no visa required, proof of residence or any other KYC. The account can be in USD; Pounds; Lari and Euros.

The wine is of the best in the world; people are not the most friendly nor hostile thankfully. Very Beautiful, Old and Interesting. They are trying to become part of the EU which is great.

My Next visit will be to setup a new home away from home then gradually move everything there.

What about language? Communication in general? eg signposts.

Oh, and what is the general tax rate?


There are 6 simple tax rules, which simplifies life.
However there are additional municipal taxes for buying properties et cetera. Vat is 18% but products costs more or less the same as but you will find that your purchase power is generally higher.

The cadres are getting desperate ! The money is running out

It was never going to happen that your could emigrate, leave your retirement fund here and then avoid paying local tax on the proceeds, not when you enjoyed a bunch of taxpayer-sponsored tax breaks to grow this money.

Nothing draconian here though. Merely suggests that your withdrawal tax liability will be calculated based on the fund value on the day before you cease to be a tax resident.

However, if you leave the money here until you die or retire (such amounts wee alwayus deemed from a SA source and were taxed locally), then the prevailing tax tables at the time will apply. This would mean that you are taxed twice on the same fund (deemed on ceasing to be a non-resident and actual on dying/retiring). To avoid this, you receive a tax credit for the deemed portion.

A bit troubling that the people at WW can’t figure this out and disappear down a rabbit hole instead.

Believe me there is more to come, Sars and the anc will do everything to try and stop people leaving the country with capital.
Just look at what happened to people who tried to leave Zimbo. Many could only take some clothes.

Plan accordingly. Avoid formal retirement structures, Use physical gold and Bitcoin or other crypto currencies. Most cant even afford to retire in ZAR, let alone USD or GBP.

End of comments.





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