Amendment a way to keep pensioners’ savings in the country and is against the spirit of removing exchange control - Prof Jannie Rossouw
The biggest danger of the financial emigration law amendment that comes into effect on 1 March is it could mean the total emigration of the country’s tax base.
Between 500 000 and 600 000 taxpayers pay more than R750 000 ayear, which makes up 50% of personal tax and 20% of the country’s income.
Professor Jannie Rossouw from the Wits Business School sounds this warning and says it is mainly young people with advanced skills who already work remotely for international companies who will emigrate. “They will just move to a new place and continue their work, which means that they will not leave a vacancy behind that needs to be filled.”
Jonty Leon, director of Financial Emigration South Africa, said there was still time left for people who want to effect financial emigration before the tougher exit rules come into effect under the three-year lock-up dispensation.
“However, before people start to rush into the process now, we should wait and see if there will be new regulations in the Budget on Wednesday. It is not surprising that so many more people are leaving the country,” he said.
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Johan Troskie, an independent tax lawyer, says until now the process worked well and he does not expect any more negative measures, although he sees the new law as an unnecessary limitation on people who want to emigrate.
The national Treasury and Sars submitted the Taxation Laws Amendment Act No 23 of 2020 in October last year. This amendment stipulates that your retirement money will be locked in for three years after 1 March which means that you will not allowed to touch it.
The President assented to the amendment on 15 January and it was subsequently promulgated on 20 January 2021.
South Africans who have moved abroad or plan to permanently leave South Africa have until 28 February 2021 to effect financial emigration. Many South Africans abroad have formalised their non-resident tax status through financial emigration, but it has become a thorn in the side of Sars and the Treasury, Leon says.
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“The change to the emigration rules appears to be a desperate bid to stem the tide of South Africans making up their mind to ‘divorce’ South Africa fiscally through financial emigration. This means Sars will aggressively target expats as an untapped pool of potential revenue, exposing your offshore trusts, foreign income streams and other assets held abroad.”
Leon says we are heading into uncharted territory, with a complete transformation of the financial emigration process. Those left behind will undoubtedly have tougher terrain to navigate after 1 March 2021.
According to Leon, current legislation allows for someone who emigrates from South Africa and has formalised their emigration using the financial emigration process to immediately, upon conclusion of that process, fully withdraw their retirement funds, such as a retirement annuity, before maturity of the fund.
“This has been useful for many South Africans who have left or are leaving, as these funds are often used to set themselves up in their new home country. Taxpayers are also allowed to decide to remove their investment and invest in something more viable for their new circumstances.”
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South Africans who have already financially emigrated still have the opportunity to withdraw their retirement funds. Those who have finalised financial emigration, or have their full application submitted to the South African Reserve Bank before 28 February will be able to withdraw their retirement funds under the old dispensation until 28 February 2022.
Taxpayers will only be able to access their retirement benefits after 1 March if they can prove that they have been non-resident for tax purposes for an uninterrupted period of three years.
Leon says the way the new system will practically work must still be set out, taking into consideration the policy provider’s requirements, SARS requirements, the need for documentary supporting evidence and proof of non-residency status for three consecutive years.
“However, what we do know is that a more stringent verification process and risk management test is in the pipeline, if the budget speech this month is anything to go by. There are no guarantees the government may not decide to extend the three-year period for another three years, or perhaps indefinitely.”
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