Yes, as an Expat you can cash out your RA, yourself!
Withdrawing funds from SA can be easy or difficult depending on the type of investment and the personal circumstances of the individual. Retirement policies are a little trickier to access than other investments, but there is a specific process that allows for this to be done.
The information below is intended to explain this process in layman’s terms.
Exchange Control & Your Asset Types
Some of your funds may already be in cash (e.g. savings, inheritances, proceeds of an asset sale such as property), or in investments that can easily be converted into cash (e.g. shares or unit trusts). It is relatively easy to extract such funds (cash or liquidated investments) from SA. Exchange Control currently allows for up to R22m per family per annum to be transferred abroad. This is a relatively straight forward process, the set-up of which Expatri8 can assist with.
How does that work? Discretionary allowances explained:
In layman’s terms: The first step is obviously to liquidate the investment, i.e. to turn the investment into cash. You simply instruct your broker, or the institution where the investments are housed or managed, to sell the investments and to transfer the cash to your bank account. The bank account typically needs to be in your own name, as very few institutions will transfer funds to a 3rd party bank account. (Ask us for assistance if you no longer have an active bank account in South Africa.)
Once the cash is in your bank account, the bank or foreign exchange intermediary will do the rest according to SA Exchange Control Rules and Regulations, including the management of so-called Foreign Investment Allowances:
- Each South African can transfer abroad R1m per calendar year (01 Jan to 31 Dec) without the need for a tax clearance certificate from SARS. This is referred to as a Single Discretionary Allowance, or SDA. Your bank will provide a few simple declarations to sign. It is a relatively quick and easy process.
- Each South African can invest a further R10m abroad (per annum) under the Foreign Investment Allowance (or FIA) provision, but this transfer will require a Tax Clearance Certificate from SARS for the exact amount. SARS thereby confirms that the taxpayer is free from obligation to the Receiver. This application may lead to an audit of the taxpayer, but it is usually a pretty efficient process. With the certificate from SARS at hand, the bank or foreign exchange intermediary will then take care of the rest of the paperwork.
The above two transfers combine into a potential withdrawal of R11m per annum (calendar year) by each South African Expat under the existing Exchange Control regime. Due to tax free donations being allowed between spouses a family could therefore avail itself to up to R22m foreign transfer each calendar year under the normal Exchange Control regime.
For those fortunate enough to have more funds available, it is possible to apply to take out more at one time. This too will involve clearance from SARS, but will then require a Special Application to the SA Reserve Bank via your bank. The SARB will consider the merits of each application, and will generally agree to larger amounts if all declarations are found to be in order.
To Summarize: Successfully transferring funds abroad, requires you to have the documentary proof of where the money came from, proof that your tax affairs are up to date (for amounts larger than R1m), and that you have a valid bank account (in your name) through which the funds can be converted and paid abroad. Once all is in order the only remaining item will be to negotiate the exchange rate and have your bank transfer the funds abroad. Read more about forex transactions here.
Simple Process Guideline:
- Instruct that your investments be sold or ”cashed in”;
- Transfer the proceeds into a bank call account in your name;
- Sign various bank declarations indicating residency status;
- Select the type of Exchange Control transaction: SDA (under R1m) or FIA (R1m – R10m);
- Get tax clearance certificate if FIA (you will need a bank statement showing the exact or more funds for this application);
- Submit the required documentation and process the foreign exchange transaction and transfer abroad via your retail bank.
Please do not hesitate to contact Claire if you need assistance with the administration of the process outlined above.
Retirement products (policies, pensions) are another matter. These investments are strictly governed by legislation designed to encourage, and thereafter enforce, long-term savings. The express aim is to prevent residents of the country from becoming dependent on the state in their old age. These savings are therefore by design more challenging to cash out – if not entirely impossible.
The Problem: Retirement Annuities (RA’s) can only be accessed at age 55, and then only 1/3rd can be taken out in cash whilst the rest has to be reinvested in a Living Annuity (for the rest of your natural life or until slowly depleted).
This is inherently unfair towards SA Expats who have permanently established a new life abroad and hence require their funds in their new country of residence. After all: If you have no intention of returning permanently to SA, you will clearly not become a burden on the local economy!
The Solution: The authorities finally acknowledged this injustice and in 2008 the Tax Act was amended to allow for the early and full benefit withdrawal of RA’s by South African citizens who have settled abroad, and whose intention at that point is not to return to South Africa as a permanent resident in the future.
The Method: The mechanism through which this is managed is an administrative procedure called Formal Emigration. It essentially changes the residency status of an individual from Resident to Non-Resident, and formally records their new status with the South African authorities. It involves a prescribed administrative process involving the SA Reserve Bank, SARS and the individual’s local institutions (bank and insurers or pension fund administrators). At the end of the Formal Emigration process the insurer is allowed to cash out the Formally Emigrated individual’s Retirement Annuity, and their bank is allowed to transfer the proceeds abroad.
Read more about the different types of retirement products that qualify, here.
What does the Formal Emigration process involve?
Emigrants naturally need permission from the destination country before relocating there permanently: entry visas, work permits, temporary or permanent residency permits, etc. But when you depart from SA there is no requirement to formally notify the local, South African authorities. Most South Africans simply sell up and leave the country. Some decide to leave permanently from the word go, others only decide to remain abroad after having worked and lived overseas for a few years.
The question for the South African authorities is therefore how to establish the true residency status of an Expat without creating a loophole for local South African residents to cash out retirement policies prematurely. The prescribed administrative process therefore contains a number of checks and balances, including proof of foreign residency status, supporting documents proving assets in SA, and getting clearance from SARS to confirm there are no outstanding taxes.
The Formal Emigration process essentially allows the individual to formally notify the authorities (SARB and SARS) as well as their financial institutions (banks and insurers) that they have permanently settled in a foreign country, and their intention, at the time of declaration, is not to return to SA as permanent residents.
In short: Formal Emigration or Financial Emigration means the changing of an individual’s status – for exchange control purposes – from Resident to Non-Resident. It is the only mechanism by which an insurer or pension fund administrator will be permitted to cash out certain retirement policies.
What are the practical implications of Formal Emigration?
Formal Emigration does not affect your South African birth right, your citizenship or your right to retain a South African passport – once a South African always a South African.
The process also has nothing to do with foreign visa requirements, or SA Home Affairs; it only confirms non–residency status for financial purposes.
It is easily reversible should circumstances change in the future, for instance if you decide to return to South Africa permanently. The only requirement is that it is the individual’s intention not to return at the time of application; circumstances could change.
One can retain assets in or income from South Africa, and still have an active tax number. This process only addresses the issue of where the citizen is considered to be resident for Exchange Control purposes.
One may also make ‘un-encumbered’ (i.e. no further permissions or tax clearances required) future transfers abroad of:
• South African-origin inheritances;
• the proceeds of the sale of all assets declared in the emigration application;
• passive income derived from investments remaining in SA (e.g. rent, dividends, director’s fees, salary for services rendered in South Africa and income from discretionary or vesting trusts);
• proceeds from a third party life policy.
As a Formal or Financial Emigrant one will have a single bank account, called an Emigrant Capital Account, or ECA (previously known as a ‘blocked account’). This account will typically allow view access via the Internet but will have restricted on-line functionality (although this is changing as the banks introduce better technology). The retail bank with which the ECA is held will control and administrate the funds in that account under instruction of the beneficiary (you). The bank will be responsible to ensure that all transactions correlates to the declared assets before transferring any proceeds abroad. (This prevents Exchange Control fraud by residents laundering funds through someone else’s ECA.) One may hold no debt (apart from certain approved liabilities such as bonds) and no other bank accounts or bank cards.
Any cash cleared into your ECA can be tranferred abroad at any time, or paid/withdrawn locally in South Africa (e.g. visits to South Africa).
What do I need?
Use our free checklist to see what you will require and if your retirement policy qualifies to be cashed out.
How will E8 assist me?
Expatri8 is trusted by South Africans living all over the world to provide sensible, cost-effective solutions to cash out their retirement policies. Find out how!