A guide to the emigration process of transferring funds abroad in light of the new dispensation
In recent months we endeavored to enlighten the readers intending on emigrating from the South Africa of the financial requirements and associated consequences such as the cessation of South African tax residency following a SARS verification process. The gist of this last article on the subject matter of emigration considers the impact on foreign capital allowances that are available to South Africans.
As already alluded in previous articles, ceasing of tax residency triggers a deemed disposal of your worldwide capital assets for capital gain tax purposes and the resulting tax cost could be material should you own capital assets at such a time. As part of the tax administration process, a SARS TCR01 Emigration Application fully disclosing the assets and liabilities is completed and thereafter, if approved, SARS will issue a Tax Compliance Status (TCS) verification confirming the end of one’s tax residency.
Transfer of foreign capital allowances abroad
An authorised dealer can begin to facilitate the transfer of your allowances soon after the receipt of your TCS from SARS confirming that you are no longer a tax resident. The relevance of this confirmation is that an authorised dealer can facilitate the transfer of the below-mentioned allowances abroad:
- A single discretionary allowance of up to R1 million will be permitted in a calendar year without needing to obtain approval from SARS;
- In the case of foreign capital allowance, up to R10 million per calendar year will be permitted;
- A more stricter verification process will be applied by SARS in instances involving investments in excess of R11 million. Prior to the approval of such transfers, SARS in collaboration with the Financial Surveillance Department will have to verify your tax status and the source of your funds in accordance with the Anti-money laundering and counter terror financing regulations stipulated in the Financial Intelligence Act;
- Where an individual has been non-resident for at least three consecutive years, they will be allowed a withdrawal of lump sum benefits from a ‘restricted’ retirement preservation fund or retirement annuity fund (as discussed in last month’s article).
The R1 million single discretionary allowance applies to all South African residents over 18 years and it covers reasons such as monetary gifts, loans, travel allowance, donations to missionaries, any use of your South African debit or credit card abroad and travel allowance for minors (R200,000 per calendar year). Regarding the R10 million foreign investment allowance for individuals, SARS will issue out a Foreign Tax Clearance Certificate which is valid for a period of 12 months. With this certificate you can transfer up to R10 million in a year. The transferred funds may be invested into offshore investment portfolios, property or other investment vehicles and may be utilized as deemed necessary.
However, anything in excess of R11 million will require an application to be made to SARS for a Letter of Compliance and this application is also subject to the South African Reserve Bank’s (“SARB”) approval. Each application for this Letter of Compliance is assessed on its own merits, and with it, there is no limit to how much money you can transfer out of the Republic. It is also important to note that while tax clearance certificates are valid for a year from date of issuance, your allowances are based on the calendar year. South African residents have transfer allowances that renew annually on the 1st of January.
Finally, the new dispensation, effective from March 2021, requires “tax emigration” with the SARS and not the SARB as before. Once you are officially non-tax resident and in good standing with the Revenue Authority, you can transfer your hard-earned millions out of the country to an overseas account by making use of any of the options discussed above.
Please note that the above is for information purposes only and does not constitute tax/financial advice. As everyone’s personal circumstances vary, we recommend they seek advice on the matter. While every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein.
Article prepared by: Tinashe Chipatiso (Tax and Corporate Consultant)
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