Emigrating to another country can be as stressful as it is exciting. It’s difficult enough to relocate your possessions, but it becomes even more complex when the time comes to transfer your financial assets abroad. Can you just use your foreign investment allowances to move your money or do you need to financially emigrate? There are reasons to emigrate and reasons not to, and there are cost implications to emigrating – one doesn’t always need to emigrate considering the allowances already available to private individuals. Tim Powell, director of forex at Sable International, looks at the reasons for and against financial emigration.
What is financial Emigration?
Since South Africa has exchange control legislation governed by the South African Reserve Bank, when South Africans go and live in another country, they have the option of financially emigrating as well and effectively placing their emigration on record with the South African Reserve Bank. Once you have financially emigrated, the South African Reserve Bank will change your residency status from resident to non-resident and your bank will open a blocked Rand account where all your South African assets will be housed for transfer overseas. This change in your residency status has no effect on your right to South African citizenship or South African passport, it is simply an exchange control matter.
Use your allowance now, financially emigrate later
If you intend on moving to another country, you do not have to financially emigrate to start transferring your wealth abroad. You are able to utilize your foreign allowances as follows:
- Up to R1 million per year discretionary allowance – no tax clearance certificate required.
- Up to R10 million per year investment allowance – tax clearance certificate required.
- To transfer more than R10 million you will need a tax clearance certificate and you must submit an application to the Financial Surveillance Department of the SARB for approval.
“We recommend that if you do want to financially emigrate, that you first take out what you can with your allowance and then start the emigration process, as it can take three months to complete and you may want access to your money immediately.”
Which assets require financial emigration?
Moving overseas, you would need to consider the following assets:
- Your retirement annuity, pension and provident funds
- Assets declared in your application
- Inheritance you may receive in South Africa
- Proceeds from life policies
- Passive income received from sources such as annuities, rental, trusts and payments for services rendered in South Africa
All of the above-mentioned assets, except for retirement annuities, can be transferred without financial emigration, as long as the value falls within the annual allowances.
“If you’re living overseas and your only remaining asset is a retirement annuity policy, you may want to financially emigrate as the rules around retirement annuity policies require that the only way you can encash them, is to financially emigrate. A pension or provident fund, you can cash, pay the tax and take overseas on your allowances, but cashing in a retirement annuity, requires financial emigration,” explains Powell.
After successfully changing your status to non-resident you will be able to encash your retirement savings before the age of 55.
“If you have assets greater than the annual foreign allowances, financially emigration allows you take everything out in one go, so if you want to take out more than the allowance at once you would need to financially emigrate. There used to be a levy on financial emigration, so if you financially emigrated you would pay a 10% levy, but this is gone.”
“Lastly, if you are already living overseas and inherit from an estate in South Africa, and you don’t still have a South African ID, you probably need to financially emigrate,” concludes Powell.
The first step to financial emigration
Powell says that in order to change your status from permanent resident (or resident living temporarily abroad) to non-resident you must register your intentions with the South African Reserve Bank (SARB).
“You will need to make sure your tax affairs are up to date and in order before you submit your application forms and supporting documents, and you may have to submit a tax clearance application.”
“Once the application has been successfully processed, the SARB will issue you with an exchange control number, and you will be able to use a non-resident bank account to freely transfer your funds abroad.”