There are many reasons why South African tax residents undertake to cease tax residency through the financial emigration process. One of the reasons is that a successful financial emigration provides one with the rare opportunity to fully encash your policy funds.
However, individuals are struggling to successfully encash their policies through the South African Revenue Services (SARS) due to ongoing issues arising from the implementation of SARS’ new tax laws, which came into effect 1st of March 2021.
Financial Emigration is part of a group of companies which has been in existence for 17 years and are widely acknowledged as the market leaders in expatriate tax. The group is diligently and consistently addressing these issues with SARS to find operative solutions to avoid further rejections.
Financial emigration requirements pre and post 1 March 2021
Financial emigration applicants must declare all their current remaining assets and liabilities in South Africa to SARS.
Pre 1 March 2021 these applications were recognised by SARS and the South African Reserve Bank (SARB). It had to be accompanied by a duly completed SARB MP336(b) form, together with a ‘Tax Clearance Certificate / Tax Compliance Status (TCS) Pin – Emigration’ obtained from SARS to get SARB approval.
Proof of these endorsements were required to successfully encash financial emigration applicants’ policies.
Post 1 March 2021 SARB decided to have the financial emigration process fully monitored by SARS and therefore the MP336(b) and SARB approval requirements fell away. Although these documents can no longer be obtained, SARS often still ask for them, so the financial emigration process changes have not yet been effectively integrated at SARS.
Separate Tax Compliance Status Pins for emigration
As of 1 March 2021, SARS implemented that financial emigration TCS Pins must be done in one’s individual capacity, however SARS’ tax directive department did not take into consideration that SARS, prior 1 March 2021, approved a joint financial emigration TCS Pin.
Consequently, where you were not the main applicant, SARS requests you to redo the process they already completed successfully, and which was recognised through SARS and SARB.
This will reflect as a duplication on SARS’ records and further be highly unfavourable towards the taxpayer. By submitting similar requirements, it can possibly trigger additional tax implications and delay turnaround time.
Expiration of Emigration Tax Compliance Status Pins
The SARS TCS Pin that was issued for emigration, automatically produces a twelve-month expiry date period.
However, when a TCS pin is issued and expires, the non-resident must reapply and upload a covering letter where they set out the reasons or circumstances which led to the original TCS pin expiring and why they require a new TCS pin.
Further, the non-resident must provide proof that they have met the three years requirement threshold, however SARS does not have a set list of what the documents should be.
SARS have advised taxpayers to apply for a Foreign Investment Allowance (FIA) certificate, however this certificate is not accepted by financial services providers as ‘emigration’ is not stated on the certificate.
The FIA procedure does not have a distinction between resident and non- resident, because its sole purpose is to transfer funds from South Africa abroad.
Tax Residency Certificate requirement
Non-residents who ceased their tax residency before the 1st of March 2021 financially emigrated under a process that was recognised by SARS and SARB.
In relation to the definition of the terms of subsection (1) as per the definition of ‘retirement annuity fund’ in paragraph (b)(x)(dd)(A)(AA) and ‘preservation fund’ in paragraph (c)(ii)(aa)(A) of the Income Tax Act 58 of 1962 (Income Tax Act), as amended by the Taxation Laws Amendment Act 23 of 2020, recognition of the approvals from SARS and SARB are required to prove non-tax residency before their full policy withdrawals can be processed.
There was never a further requirement in terms of the law that one had to produce a tax residency certificate from the country/state where one currently resided in as additional proof, although it was considered non-negotiable according to the current SARS directive guideline manual.
Subsequently, the financial services providers have also added this requirement to their guidelines before submitting them to SARS. Financially emigrating through the recognised SARB process should suffice as the necessary checks and documents have already been provided to achieve this.
You should never try to undergo financial emigration more than once, as this has been identified by SARS as a once off process.
Unfortunately, SARS only identify with and considering their current systems and procedures. They fail to provide effective, manageable resolutions to previously approved applications, as well as future impact implications such as trying to successfully withdraw policy proceeds.
The financial emigration process is a formal one that notes you as a non-resident for tax purposes. This process is constantly changing through SARS and SARB. As these changes occur, Financial Emigration will continuously provide guidance towards successful outcomes for our clients.