Talk to a financial advisor before making a decision. Don’t panic and don’t rush.
- The national treasury announced in the 2020 budget that the concept of “financial emigration” would be abolished.
- This proposal is reflected in the 2020 draft law amending tax laws.
- The bill stipulates that a new test provides for the payment of a flat rate pension fund if a member is no longer taxable in South Africa.
The concept of financial emigration is changing, affecting pension fund members looking to move out of South Africa – and potentially their savings, warns Denver Keswell, senior legal advisor at Nedgroup Investments.
For SA Reserve Bank’s foreign exchange control purposes, financial emigration means changing a person’s tax status from being resident in the SA to non-resident in the SA. The national treasury announced in the 2020 budget that the concept of “financial emigration” would be abolished. This proposal is reflected in the draft law to amend the tax laws 2020 (TLAB).
“Pension fund members are generally only allowed to access their pension fund benefits after reaching retirement age, namely 55 years for members of the pension fund and members of the nature protection fund who have already made a previously permitted payout,” explains Keswell.
“However, the definition of a pension fund, a retirement fund and a pension fund in the Income Tax Act allows a fund member to deduct their full fund value prior to retirement if they officially emigrate from South Africa. Abolishing this requirement would require a new test for a pension fund member, to deduct their pension benefits if they ’emigrate’ from the country. “
– Denver Keswell
The Act Amending Tax Laws therefore proposes that a new test provide for the payment of a flat rate benefit to pension funds if a member is no longer taxable in South Africa and has not been a tax resident for at least three consecutive years. If the proposed changes are incorporated into the law, they will take effect on March 1, 2021.
Ongoing lobbying
According to lawyers for Aneria Bouwer at Bowmans, there is still lobbying against the introduction of this three-year waiting period. One of the implications could be that South Africans planning to emigrate may not have to rely on withdrawals from conservation or retirement funds to cover their settlement costs in a new country.
The current regime allows withdrawals in the event of financial emigration. In other words, members of maintenance funds and retirement pensions can withdraw their funds if their emigration is recognized by SARB for exchange control purposes.
With the current regime continuing to apply to financial emigration applications received on or before February 28, 2021, there are indications that more South Africans have attempted to expedite their emigration application process.
“In the view [of Treasury]The three-year waiting period is a mechanism to ensure that enough time has passed for all emigration processes to be safely completed without affecting workers whose status changes for reasons other than financial emigration, “explains Bouwer.
It is important for potential emigrants to understand that the waiting period of three years only applies to nature conservation and old-age pension funds, not to current membership in pension or provision funds. The full after-tax value of a payment for a pension fund or a provident fund is still available to the current members of these funds after March 1, 2021.
“Talk to a financial advisor before making a decision. Don’t panic and don’t rush,” she warns.