NATIONAL TREASURY CONFIRMS EMIGRANT RETIREMENT 3 YEAR CAPTURE
South Africans who have emigrated or plan to permanently leave South Africa have until 28 February 2021, just over four months from now, to effect financial emigration. National Treasury has laid down the new law and made it clear – the consequence otherwise is your retirement money will be locked in for three years, you are not allowed to touch it, and best apply it to your personal circumstances.
On Tuesday 13 October 2020 in Parliament, National Treasury (“Treasury”) and SARS presented to the Standing Committee on Finance on a number of proposed amendments to legislation, which amongst others, would directly affect South Africans who have already moved abroad, or are planning on moving abroad. The feedback to stakeholders, specifically around the withdrawal of retirement funds upon financial emigration, was certainly one which was foreseen after it was proposed in the draft Taxation Laws Amendment Bill (“TLAB”) in July 2020.
Retirement Fund Lock-in Confirmed
As proposed in the draft TLAB, Treasury would be changing rules around financial emigration and the ability to withdraw one’s retirement funds, upon the conclusion thereof, replacing it with a new 3 year lock-in.
Treasury has confirmed, despite the arguments from stakeholders, including written and oral submissions from Tax Consulting SA, that the 3 year lock-in will be implemented from 1 March 2021.
Treasury stated, “The 3-year rule is a mechanism to ensure that there is a sufficient lapse of time for all emigration processes to have been completed with certainty.”
Consequently, from the effective date of the proposed amendments, one will need to be able to prove under both South African residency tests that they are non-resident for a period of 3 consecutive years, post 1 March 2021, before they will be allowed to withdraw these funds from South Africa.
“Modernisation” or Something More Sinister
Ever since the announcement of a changed financial emigration process in the February 2020 Budget Speech, the comments from Treasury have been that the system is being “modernised”. A term which has yet to be fleshed out by Treasury, with only simple explanations that provide no sense of understanding, such as, “One of the main objectives of the reform is to modernise the capital flow oversight system in a manner that balances the benefits and risks…”.
With the various submissions made by stakeholders on the issues foreseen with the proposed changes, Treasury provided little feedback on the important issues raised, often providing no explanation but for a one sentence response. Government’s unwillingness to budge on the lock-in, incites fears of the looming worries of taxpayer’s retirement funds falling into the hands of government to fund social infrastructure in SA, changes to Regulation 28 and perhaps even an easy target for higher taxes on pensions or a wealth tax.
This concern was brought up by National Treasury previously, where it was denied that the so-called “modernisation” and lock-in had any link to this possibility. However, with the unwavering determination to lock-in retirement funds from 1 March 2021, this becomes less believable. There is clearly a massive downside to anyone having their retirement funding captured in a system; so the question remains unanswered what corresponding benefit National Treasury plans to achieve by keeping retirement under state control.
Treasury Provides A Small Window
For those South Africans who heeded the call to formalise their affairs by financially emigrating, the opportunity to withdraw retirement funds remains, and there is still time to do so.
For those who decided against this, Treasury has announced that those who still intend to financially emigrate may do so, however they require that, “complete applications [must be] received by the SARB before 1 March 2021…”. If complete applications are received by this deadline, they “will be finalised through the existing process.”
Treasury noted specifically that, “The amended provision will apply to all cases that meet the requirements on or after 1 March 2021.”
The Time is Now
Today’s announcement appears to be the final warning – South Africans leaving SA have little over 4 months to financially emigrate under the current dispensation, and thereafter to withdraw their retirement funds, before it is locked in for 3 years minimum.
We are heading into unchartered territory, with a complete transformation of the financial emigration process – those that have been left behind will undoubtedly have tougher terrain to navigate come 1 March 2021.
