In the previous two editions of our newsletters I tackled the problems confronting SA Citizenship and SA Tax Residency rules. In this the final part to the series I deal with Exchange Control.
Exchange Control Residency is perhaps the simplest of all the concepts. The South African Reserve Bank [SARB] takes the view that once a resident for exchange control [whether by birth or naturalisation] you remain a resident until you complete and file an MP336b form with them via your local bankers. This form is called an “Emigration Form” and includes a declaration of your local assets and liabilities at the time of your intended departure from the country. As mentioned in the first article in this series most folk who leave South Africa do so without completing this “Emigration Form” under the mistaken belief that it will somehow impact on their Citizenship rights.
This fear may arise because the signature portion of the form includes a declaration that one is “permanently relinquishing my/our South African residence to take up permanent residence in the country specified”. The fear is unfounded because the right to reside in South Africa stems from one’s Citizenship and the form does not include a renunciation of one’s Citizenship or a renunciation of the right to reside in South Africa at any time in the future.
The form also includes an undertaking to repatriate any funds exported from South Africa if the person returns to live permanently in South Africa within five years from the date of their emigration. This is designed to thwart anyone who thinks they can just quickly emigrate to get their money out the country without any real intention of moving permanently abroad. SARB will be on the lookout for folk who try and get around exchange controls in this way.
Why emigrate for exchange control? Simply because by doing so you will be able to take all of your assets and investments out of South Africa without restriction [except for “Living Annuities” if already retired]. The levy payable to SARB on amounts in excess of R4 million in exported funds has been cancelled. Inheritances will be free to flow abroad from local benefactors. Those who have retirement annuities “trapped” in South Africa will be able to terminate these products, pay income tax and export the full net proceeds without having to wait for income payments to trickle in over time. If you return to South Africa after you have spent five or more years abroad, you will be able to retain your offshore assets. Perhaps most important of all, the Revenue Authority [SARS] will have irrefutable proof that you are no longer a resident for Tax purposes and so you will have broken the link to World Wide taxation in South Africa on all your income and capital gains.
The unintended consequence? Of course, as with the previous topics I have covered, there can be some curved balls to a formal emigration. There are restrictions on local credit cards [you have to relinquish them] and on your local bank account [they will monitor that carefully to ensure you do not become a “courier” for exporting other peoples funds for them via your own account]. The big one to be aware of however is that on emigration you are deemed for Capital Gains Tax purposes to have disposed of all your local assets at market value – so will have to account for CGT even on assets you leave behind and don’t sell up.
Take professional advice to get it right for your particular circumstances – whether you are planning to emigrate or if you left RSA ages ago without emigrating.