Giving one sleepless nights about planning around their assets remaining or joining them on their new ventures. Unfortunately, the answer is often not a yes or no, but is reliant on various aspects of the situation, circumstances and smallest details of these assets. Thus, further elevating the confusion for the expat with widespread misinformation circling the topic.
Determining Capital vs Income
Differentiation is key when it comes to advisory and planning. Thus, it is firstly important to have a good understanding of your assets and income. As upon ceasing tax residency, SARS will not always allow the transfer of all South African assets. Secondly, the treatment on the transfer of funds from South Africa will be guided by the nature of the funds i.e., are they regarded as capital or income in nature, by law. With an easy example being that the sale of the property is regarded as a capital event, however, any rental activities are regarded as income. Misalignment on these could very quickly land the taxpayer in hot waters, with declined applications and burdensome audits, further building on an already stressful move. Thirdly, the source of the funds is also important and refers to the origin of the funds – how did you make the money, has this been correctly declared and are the funds above board?
Capital transfers are subject to exchange control allowances and SARS clearance certificates, i.e., a taxpayer is afforded a R1 million once off discretionary allowance in the calendar year that an individual ceases to be tax resident. Alternatively, should additional funds require transfer a SARS Approval International Transfer (“AIT”) Tax Compliance Status (“TCS”) PIN for the desired amount will need to be obtained.
The assets the taxpayer chooses to retain in SA, will then form part of their “capital assets” (formerly known as emigrant remaining assets). Thankfully, these are not stuck in SA but can be transferred at a later date through the request for an additional AIT TCS PIN, once one is ready to expatriate the funds. For example, you can retain your SA property until beneficial for sale and transfer the proceeds once the sale is finalised.
The South African Reserve Bank (SARB) also allows externalisation of cash balances and unlisted shares. Meaning that once an individual has ceased tax residency, their local shares may be classified as non-resident assets and the proceeds will be freely transferable offshore without the requirement to obtain an AIT TCS PIN from SARS or any SARB approvals. The dividends from those shares may also flow directly to offshore.
With new imposed legislation the cashing out of retirement and pension products has become more complicated as this is only allowed to be carried out by authorised dealers if the individual has remained non-tax resident for at least three consecutive years post their cessation.
Any income generated from your capital assets once you have ceased tax residency are freely transferable to offshore, with the requirement that the Authorised Dealer verifies your SARS tax compliance status once a year by the provision of a Good Standing TCS PIN.
Funds classified as income in nature are fixed property rentals, dividends, payout from life annuities, interest earned on cash in bank or loan accounts, remaining salaries earned in South Africa from an unrelated party and distributions from trusts emanating from an income nature source.
The transfer of income in nature funds is not subject to allowances as is the case with capital in nature funds. However, income distributions from South African Inter Vivos Trusts of over R10 million require an AIT TCS PIN and further SARB approval.
To put this into perspective for clarity, if you receive R20 million dividends from your non-resident classified shares, those funds are transferable with an annual verification of a Good Standing TCS PIN from SARS. Whereas, if you receive a R20 million income distribution from an Inter Vivos Trust which emanates from dividends, an AIT TCS PIN from SARS and further SARB approval will be required.
Inheritance received in South Africa is freely transferable offshore, provided the estate of the resident has been finalised. There is no requirement for you to provide a TCS PIN from SARS, irrespective of the amount being received and intended to be transferred.
It is worth taking note that it is a little different if you are no longer registered for tax on the SARS system. In that case, you will be allowed to transfer the inheritance proceeds if the value received is under R10 million. If the amount is over R10 million, you will have to apply for a manual letter of compliance – transfer of funds from SARS.
A manual letter of compliance can only be used if you are no longer registered for tax on the SARS system and wish to transfer:
an inheritance or life insurance policy (excluding lump sum benefits from pension preservation, provident preservation, retirement annuity funds and life annuities from insurers) above the value of R10 million; or a distribution from a South African Trust as a beneficiary, irrespective of the amount.
Navigating the complexities of ceasing tax residency in South Africa and respective fund transfers requires meticulous attention to detail and a comprehensive understanding of the legal nuances. In light of the potential pitfalls and the intricate nature of tax regulations, seeking professional assistance is strongly advised. Professionals with expertise in expatriate tax and regulations can provide invaluable guidance, ensuring a smooth transition and minimizing the risk of complications. By enlisting the support of knowledgeable professionals can greatly ease the burden and allow one to focus on their new ventures abroad.