RECENT CHANGES TO FINANCIAL EMIGRATION LEAVES BANKS IN THE DARK
“From blocked accounts, to financial freedom, and back to blocked accounts.”
Lovemore Ndlovu
SARS and South African Reserve Bank Specialist
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National Treasury’s Budget Review of 2020 (“the Review”) highlighted changes to the tax and exchange control of individuals, particularly those who underwent Financial Emigration (“FE”). Not only did the South African Reserve Bank (“SARB”) remove themselves from the emigration process, but it was repealing restrictions placed on non-residents.
The aim of this decision was to ease the limitations on emigrants and to make transacting easier for them while in transition. They were instantly free to invest, borrow, lend and transact like any other South African. In the Review it states that “under the new system, natural person emigrants and natural person residents will be treated identically.”
Out with the old, in with the new
Before 1 March 2021, if you changed your tax residency status to non-resident, your bank accounts were converted and designated as Non-Resident bank accounts and were referred to as emigrant-blocked accounts. This was done for exchange control purposes, to track funds leaving SA and monitor all cross-border capital transfers. Once declared non-residents, emigrants had limited access to online banking, could only hold credit associated to an asset and could only engage with one banking institution.
Post March 2021, we were expecting to see the emigrant blocked accounts fall away, as SARB was no longer a part of the process. Now under the new regime, when an individual ceases their tax residency by financially emigrating, it has become a requirement for them to notify their banking institution/s (authorised dealers) of their tax residency status change. Thereon the relevant bank account/s associated, will change status name, the account/s will be converted and designated as non-resident.
The left hand doesn’t know what the right hand is doing
In the circular on 21 May 2021, SARB noted that it is up to each Authorised Dealer to control non-residents and the movement of their funds for exchange control purposes. As a result, some banks are still restricting non-resident accounts for tax non-residents – others say they do not apply any restrictions, and a select few are working on new systems to simplify the process for their clients.
To maintain control over the flow of money movement in and out of the country, SARB instructed banks to monitor non-resident accounts and to submit a report on activity in each account. The only sure way to see every single activity that goes on in an account, is to ‘block’ it. There are banks who are looking for ways to get around this hurdle, but they have all reverted to ‘blocking’ non-resident accounts to adhere to SARB’s instruction.
The “blocking” dilemma
While banks are trying not to inconvenience clients, the blocking process makes it impossible not to. Because the onus is on the authorised dealer, they will rather protect themselves by monitoring and potentially resorting to blocking non-resident accounts.
To summarise, the process went from ‘blocked’ non-resident accounts – to resident accounts with financial freedom – back to ‘blocked’ non-resident bank accounts. This directly contrasts the reasoning behind the changes to financial emigration because it does not treat residents and non-residents identically.
What has actually changed?
The main restriction that falls away is the requirement of emigrants to bank with one banking institution. They can bank with multiple institutions and choose the bank that offers the least constraints on their non-resident account, which helps little if all non-resident accounts are to be ‘blocked’. National Treasury’s promise that residents and emigrants will be able to transact identically, has not been maintained.
With confusion in the air, you need someone to guide you through the impact of these changes. A financial emigration specialist can assist with the emigration process, advise you on which bank to use and how to transact once your residency status has changed.
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