Tax law amendment
The 2020 Draft Taxation Laws Amendment will change the way we view formal emigration. This tax law amendment has a ripple-effect on South Africans who plan to leave the country, as well as expats whose emigration has not yet been finalised.
What does the new tax law amendment propose?
Although an individual can access all of their current pension fund upon resignation, the current legislation states that previous pension funds held in a pension preservation fund or retirement annuities, are inaccessible until retirement age, or until formal exchange control emigration takes place. A main benefit for formally emigrating South Africans has been access to their retirements annuities before the retirement age of 55.
Many South Africans make use of their retirement lumpsum to financially assist them in the early years of emigration or to set them up for financial success in a new country.
“Members of preservation funds and retirement annuity funds may withdraw from such funds if they formally emigrate from South Africa for exchange control purposes when their emigration is approved by the South African Reserve Bank,” said ENSAfrica.
However, the new tax bill proposes that a person only ceases to be a South African tax resident, if they remain a non-resident for at least three consecutive years. This mean that a person’s retirement annuity will be tied up in South Africa, should a person not file for formal emigration before the 28th of February 2021.
What needs to be actioned by South African expats before the 28th of February 2021?
If the exchange control emigration application is submitted before 28 February 2021 and approved before 28 February 2022, you would be able to still access your retirement funds.
South Africans that plan to emigrate within the next year, will need to take this law amendment into careful consideration when they plan their formal emigration. If you’re contemplating emigrating from South Africa in the future, you may want to consider transferring your current pension fund to the new employer’s pension fund when moving between jobs, instead of transferring your pension to a preservation fund. This way you will be able to access your pension fund in full when leaving your current job to move overseas. Otherwise, you will have to wait for at least three years to gain access to any retirement funds.
For many South Africans already living abroad, this tax bill amendment is an enormous relief, as they would possibly already be a non-tax resident in South Africa. As a result of the amendment, they would be able to access their retirement funds as soon as they have been a tax non-resident for three consecutive years after 28 February 2021.
Divan Myburgh, Director of Randtangle, would highly advise South African expats to start the process of formal emigration as soon as possible, should you not want to wait for your annuity to be paid out after at least three consecutive years.
Randtangle offers a wealth of formal emigration knowledge to assist South Africans to make informed decisions that will lead to a seamless emigration process. For a personal and complimentary consultation session, get in touch with Randtangle today.