Cashing in your South African retirement annuity with Tax Emigration.
In 2021, South Africa phased out Financial Emigration and introduced Tax Emigration. The changes in the tax laws closed a loophole which previously enabled South Africans who live abroad to cash in their retirement annuities using an early withdrawal benefit without other implications. Today, South Africans now need to apply to the South African Revenue Service (SARS) to have their status changed from resident to non-resident for tax purposes before they’ll be able to trigger the early withdrawal benefit and will now have to wait three years before the early withdrawal funds can be utilized. Moreover, there are also now capital gains tax implications which need careful consideration.
Advantages of tax emigration:
Becoming a non-resident terminates tax liability to SARS on your foreign income.
You can access your retirement annuity after having maintained non-resident status for at least three years.
Disadvantages of tax emigration:
The day before you become a non-resident for tax purposes, you will be deemed to have disposed of your worldwide asset base at market value (basically you’re treated as if you sold your assets to your now-foreign self), triggering a Capital Gains Tax (CGT) event that is commonly known as an exit charge.
What are the important things to know about tax emigration?
It is something you’ll have to do unless you plan on paying expat tax in South Africa on your worldwide earnings if you are still considered a tax resident.
It’s something you’ll have to do if you want to take your retirement savings out of South Africa.
When considering tax emigration it must be pointed out that:
Tax emigration is not your instant ticket to cashing in your retirement annuity, and you will have to maintain non tax resident status for at least three years before you are eligible for early encashment.
You will be required to pay Capital Gains Tax on your exit from the South African tax system.
You will still pay tax (and file returns) if you still have income-bearing assets remaining in South Africa.
To find out how best to move South African funds to New Zealand, book a time with James Gray to explore ways to put the best structure in place for you.
