In his February 2020 Budget Speech, the South African Minister of Finance announced various proposed relaxations to the existing exchange control regime, including phasing out of the concept of emigration as recognised by the Financial Surveillance Department of the South African Reserve Bank (FinSurv).
The long-awaited changes to the exchange control emigration rules have finally been announced in Exchange Control Circular No. 6/2021 (Circular 6). With effect from 1 March 2021, South African exchange control residents no longer need to formally apply through FinSurv for approval upon emigration.
However, this does not mean that emigrants may now freely remit funds offshore. While the formal emigration process has been abolished, the remittance of funds on emigration will still require a verification process which will, in certain instances, include a risk management test.
Very briefly summarised, an emigrant's Authorised Dealer will, in most instances, not be able to remit funds offshore, unless it has been provided with a Tax Compliance Status (TCS) issued by the South African Revenue Services (SARS). An emigrant will have to complete a SARS TCR01 'Emigration' application form in order to receive a TCS, which confirms that the emigrant has ceased to be resident for tax purposes. A TCS will only be issued in respect of tax compliant taxpayers of 18 years or older.
It thus seems that the emigration application process will be administered by SARS and not by FinSurv.
Emigration on or after 1 March 2021
- Emigrants who cease to be tax
resident and who transfer less than
ZAR 1 million per individual per calendar year, will not require a TCS.
- Emigrants who cease to be tax resident and who transfer between ZAR 1 and ZAR 10 million abroad, will not be able to have the funds remitted offshore without a TCS.
- Emigrants who cease to be tax
resident and who transfer more than
ZAR 10 million will be subject to a stringent verification process by SARS and an approval will be required from FinSurv. The intention appears to be to perform a risk assessment in terms of the anti-money laundering and countering terror financing requirements as prescribed in the Financial Intelligence Centre Act, 2001.
- All transfers of assets by an individual who ceases to be tax resident will be transferable, but subject to further detailed rules as set out in Circular 6. For example, payment of lump sum benefits upon the withdrawal of retirement funds will only be allowed by Authorised Dealers if the individual has remained non-tax resident for at least three consecutive years.
- Natural person emigrants and natural
person residents will be treated the same. The concept of a
'blocked funds account', through which an emigrant's
remaining assets were controlled, will fall away:
- income and capital distributions from inter vivos trusts may be transferred abroad; and
- pre-inheritance gifts may be transferred abroad.
In all of the above instances, the remittances will be subject to tax compliance. Also, where the transfer is for more than ZAR 10 million, the stringent SARS verification process and FinSurv approval referred to above, will apply.
Emigration on or before 28 February 2021
For transition purposes, emigrants who had their MP336(b) forms stamped and signed by an Authorised Dealer on or before 28 February 2021, will be able to apply for TCS status during the period until 28 February 2022. The current exchange control emigration process will thus still apply to them. They will be able to access lump sum benefits on withdrawal of their retirement funds (specifically preservation funds and retirement annuity funds) in terms of the previous dispensation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.