IFA Newsletter: How Ceasing SARS Tax Residency Affects Your Offshore Transfers from South Africa

How Ceasing SARS Tax Residency Affects Your Offshore Transfers from South Africa

IFA Newsletter November 2024

Beyond reducing tax obligations, ceasing tax residency can also exempt the individual from donations tax and estate duty on their global assets, bringing further financial relief. However, this change in tax status comes with specific implications for offshore transfers from South Africa, which are crucial to consider when planning financially for a move abroad.

Loss of the R1 Million Single Discretionary Allowance (SDA)

One immediate effect of becoming a non-tax resident in South Africa is the loss of access to the annual R1 million Single Discretionary Allowance (SDA). This allowance allows tax residents to transfer up to R1 million abroad each year without prior SARS approval. However, once an individual ceases tax residency, this allowance is no longer available. Non-residents must follow a different process for all future offshore transfers, irrespective of the amount.

Requirement for SARS Approval for International Transfer (AIT)

For non-tax residents, any funds they wish to externalize from South Africa will require SARS clearance. This means applying for an Approval for International Transfer (AIT), regardless of the amount or the source of the funds. Each transfer request will require documentation and processing, introducing a new level of administrative work and potentially extending the time it takes to transfer funds offshore.

For transfers over R10 million in a single calendar year, additional approval is required from both SARS and the South African Reserve Bank (SARB). This extra step involves more extensive documentation and can take longer to process, with an additional fee levied.

Disclosure of Assets and Liabilities

To apply for SARS approval for any offshore transfer, non-tax residents will need to disclose their assets and liabilities for the past three tax years as a minimum requirement. This includes assets both within South Africa and abroad, offering SARS an extensive view of the individual’s financial position. This step is necessary for every AIT application, and it highlights the importance of maintaining detailed financial records.

Impact on Retirement Fund Withdrawals

Non-tax residents looking to withdraw funds from their retirement accounts should note an additional requirement: Lump-sum withdrawals from retirement preservation funds (such as pension, provident, and retirement annuity funds) are allowed only if the individual has maintained non-tax residency for a minimum of three consecutive years. This restriction is intended to prevent premature access to retirement savings shortly after a person’s tax residency status changes. However, the process of ceasing tax residency can be backdated to the actual date of permanent departure from South Africa. This backdating can be useful, as it may accelerate the timeline for retirement fund access if the individual has been residing outside South Africa for an extended period.

Final Thoughts

Ceasing tax residency in South Africa offers substantial tax relief but also introduces new regulations and administrative steps, particularly for individuals who still require the transfer of funds offshore periodically. The additional requirements, such as SARS clearance through AIT applications, detailed asset and liability disclosures, and retirement fund restrictions, mean that ceasing tax residency requires careful planning.

Before making this transition, it’s wise to consult with tax specialists, treasury outsourcers such as ourselves as well as financial advisors who can help navigate the complexities and ensure compliance with SARS and the SARB. With the right guidance, individuals can confidently manage their offshore transfers and make informed decisions regarding their financial future as non-tax residents of South Africa.

Experience the difference with Merchant West Treasury Solutions. Contact us today to learn more about our treasury solutions and how we can help you achieve your financial goals. Whether you’re looking to streamline your money transfers, manage your cash flow, or mitigate exchange control risks, we have the expertise and solutions to support your success.