Protecting Your Assets in the Face of the Tax Man: A Guide for Expatriates
We all want to protect our assets as best we can, but just know that the Tax Man is always watching. For South Africans who are leaving to live overseas, it is not just a question of packing up and going and breaking tax ties with the South African Revenue Service (Sars). Ceasing South African tax residency to safeguard your worldwide income from tax liability in South Africa is a significant step that comes with the stress of relocating and uncertainty around your assets.
Questions about what happens to your investments, properties, and policies can cause sleepless nights because the answer is rarely straightforward. It depends on the specifics of each asset and situation.
The following guide can help expatriates navigate this complex process.
Capital vs Income: Understanding the Distinction
Proper planning starts with differentiating your assets between capital and income. This distinction is crucial for determining how Sars and the South African Reserve Bank (Sarb) treat them. Events like property sales, and lumpsum retirement vehicle withdrawals are classified as capital in nature, while earnings such as rental income, dividends, or interest are classified as income in nature.
In addition, Sars will assess the origin and compliance of your funds to ensure they are properly declared under the correct source. Misclassifying these can result in audits or rejected applications to cease tax residency, adding unnecessary stress to your move.
Managing Your Assets in a Globalized Market
Offshore transfers, whether for capital or income funds, are a common concern for expatriates. Keep in mind that the single discretionary allowance (SDA) of R1 million that South African residents can take out of the country in a calendar year, is not available for non-tax residents. For them, all capital offshore transfers require a Sars approval international transfer (AIT) tax compliance status (TCS) PIN. On the other hand, income offshore transfers do not require Sars or Sarb approval for amounts below R10 million. An annual good standing TCS PIN will be required for verification of one’s tax compliance standing once a year.
Furthermore, expatriates can retain South African assets such as fixed properties, investments, policies, and a trust until they are ready to transfer the proceeds offshore or for as long as they wish.
Special Considerations for Retirement and Pension Products
New legislation, which came into effect in March 2021, restricts the withdrawal of retirement and pension funds. To access these funds, individuals must remain non-residents for at least three consecutive years post-cessation. Authorised dealers (banks) may require further source verification documents prior to processing the transfer of these funds offshore.
Navigating the Rules for Inheritance and Unlisted Shares
Inheritance funds less than R10 million are freely transferable offshore without needing approval from Sars and Sarb once the estate is finalised. Benefits over R10 million will require an AIT TCS PIN or a manual letter of compliance where the individual is no longer registered with Sars.
Unlisted shares are allowed to be classified as non-resident assets. The proceeds will be freely transferable offshore without the requirement to obtain an AIT TCS PIN from Sars or any Sarb approval. The dividends from these shares will also be allowed to flow directly to offshore without needing clearances.
The process of ceasing tax residency and transferring funds can be daunting, with numerous legal and compliance hurdles. Seeking professional assistance ensures that your move abroad will be smooth and minimises unnecessary risks. Experts in expatriate tax and compliance can provide clarity and help you focus on your new journey while you enjoy the benefit of the assets you have acquired over time.
Lovemore Ndlovu is head of Sarb engagement and expatriate compliance at Tax Consulting SA.
Follow Moneyweb’s in-depth finance and business news on WhatsApp here.
