South Africans living abroad are understandably looking at their options in the light of proposed changes to rules regarding the taxation of retirement funds upon emigration in 2022
South African expatriates are already subject to a so-called ‘exit tax’ when they become resident abroad, but the National Treasury plans to introduce an additional tax on those intending to emigrate and take their retirement funds with them.
Property owned abroad, shares, trusts, unit trusts and other similar investments are already subject to a tax on their growth when a South African taxpayer ceases residency in the country. In the eyes of the tax authorities emigrating taxpayers are deemed to have cashed in or withdrawn their assets and this gives rise to a tax liability. This is referred to as deemed disposal.
Property owned in South Africa, cash, personal use assets and retirement funds are currently exempt from deemed disposal, but the Draft Taxation Laws Amendment Bill seeks to change this by applying the exit tax to these assets. If passed, the new law will take effect from 1st March 2022. The proposal states that the cost will be deferred (with interest) until the time of withdrawal.
Deferred payment or not, this is bad news for South Africans wanting to cease their tax residency. If you are living abroad with retirement interests in South Africa (75% of South African expatriates according to a Facebook survey by the South African Expats Tax Petition Group), this will impact you and could seriously derail your retirement plans.
To avoid this, forward planning is required. Now is the time to look at the options available to you to mitigate tax if this bill is passed into law, which seems likely.
Further to a major change that was introduced in March 2021, South Africans with non-resident status of over three years or more can now withdraw SA-based pensions to invest elsewhere. Legal and tax-efficient offshore pension vehicles exist for those looking to reinvest, but do not underestimate the possible implications of this decision.
Whether investing your pension offshore is a good idea will depend on your personal circumstances. It is crucial to take professional advice to ensure you are fully informed on the implications of withdrawing your South African pension and switching to an international pension saving vehicle. Taking the wrong decision could prove very costly.
If you have concerns about your retirement savings in South Africa and are seeking a potential exit strategy, please get in touch. I have helped many South African clients to make an informed decision to protect their retirement funds from a hefty bill from SARS and enjoy greater potential for capital growth. I can help you do the same.
Over the years I have helped hundreds of clients organise their finances. For me, financial planning is not limited to a single piece of advice and then moving on as is common in the industry. Instead, I like to build long term relationships and help people manage their finances to meet their needs as circumstances change. As a result, many of my clients have been with me for a number of years. They live throughout Asia and further afield but know that I am only a Skype or telephone call away.