On February 26th, 2020 our Finance Minister Tito Mboweni was brave enough, and so openly “bragged”, to go where others feared to go and came close to abolishing old-fashioned exchange control (Excon) measures resulting in blocked assets and blocked accounts. Could we see the closure of entire bank divisions dealing with blocked accounts? This is yet to be seen; time will learn as to the fate of existing blocked accounts.
Why simply financially emigrate based because a product punter offered a free meeting? There is nothing like a free lunch to grasp a free marketing opportunity! Did the product salesperson share tax expertise or marketing skills? Aha, #FINANCIALEMIGRATION was sold a product to get rid of #ExpatTax2020, despite SARS stating it is not the answer!!
Don’t worry, not too late. Trusted tax practitioner can fix the eFile/Tax profile errors created by proponents of financial agreements. #Tax2020Truth.
Hugo presented a paper, on this topic at the 2020 FISA AGM, held in Cape Town. Next presentation FISA Bloemfontein 16 April 2020.
What does the announcement signify to the #financialemigration” fraternity and short-lived industry?
Ex-pat Pensioners residing abroad (not having formally emigrated) can now extract their monthly pension and retirement annuity income from South Africa (SA) without the need of a tax clearance certificate, despite living abroad as so called temporary non-residents.
Before we start: Formal emigration has been confused with #financialemigration, which it is NOT. In fact, financial emigration does not exist at the SARB and SARS level. it is brand name causing unnecessary anxiety and uncertainty.
Formal emigration is also not tax emigration. Changing tax residency from SA Tax Resident to non-resident (Cessation as a resident as per section 9H) is what is required and formal emigration (not to mention the figment financial emigration) is NOT the required process. Read more on #taxmigration vs. #financialemigration
working in close corporation with other intermediaries, smaller and medium-sized audit and or law firms will gladly assist in analysing the feasibility of a formal emigration. Once the expat or emigrant to be is ready, we will assist with all formalities and the submission of the required documents at either or both SA Reserve Bank (SARB) and the South African Revenue Services (SARS).
Formal Emigration is indeed a SARB subject to SARS approval event, and there is no reason to give up your SA citizenship, in fact, we encourage all South African passport holders to protect their current passport. The SARB formal emigration is however subject to clients having the necessary immigration status in their new home country. Although we provide general guidance, based on SARB or Exchange Control (Excon) guidelines however all clients will have to appoint their own immigration agent or lawyer in their chosen home country.
Tax emigration is often partly completed prior to the financial emigration from our Excon system; however, clients should also ensure they have appointed a tax accountant in their new home country to ensure the transfer of asset values is correctly processed. Certain immigration jurisdictions allow immigrants to exit the SA system and gradually enter the new tax system. The most well known is probably England and it’s NDR system yet more recently New Zealand and Australia announced certain tax deferment options. Hugo has a working knowledge of these rules however specialist advice should be obtained locally in the immigrant’s new home country.
1.5New Passport, work permit, permanent residence permit or green card (USA).
1.6Latest balance sheet as filed with either SARS and or SA bankers. For a family unit we require a separate balance sheet per person;
1.7Summary of pension funds, retirement annuities and life cover as separate summaries;
1.8Short summary on the family’s background i.e. source of funds, family structure and an indication of the assets to be externalised vs. assets to be left in SA as blocked assets?
2.Our Initial Analysis
Based on the above check-list and any other information Hugo may require;
2.1An initial analysis is provided to the client or the referral firm or intermediary; whereafter
2.2The client must sign and confirm our analysis as true and correct as this document will be relied upon by the local advisors (bankers, insurance brokers and auditors) as well as the new advisers in the new home country.
3.Client Elects To Proceed / Place Application On Hold
Consider alternative or more appropriate options such as FIA (R2m per person) or FDI where the emigrant is required to expand his SA business formally into a new country but do note neither the FDI nor the FIA is emigration options!
3.1Update the tax status of the client, his spouse and that of his children to be included on the family emigration form. We normally rely heavily on the client’s existing relationship as they will best know the answers to all questions following the
3.2Tax clearance application; which entails the following information/decisions:
3.2.1Market value analysis of life cover and retirement funding;
3.2.2Name and address of local SA agent taking responsibility for the filing and payment of future taxes;
3.2.3Updated market value balance sheets per taxpayer as well as consolidated family unit balance sheet; whereafter
3.3A client meeting or telecon (using Skype) can be arranged to ensure the client has a correct understanding of the process, the implication and the cost of such an application which includes:
3.3.1Our fees and the fees of other family advisors;
3.3.2CGT on the sale or deemed sale of SA assets;
3.3.3The fees to be charged by the chosen authorised dealer i.e. obtain details of chosen bankers (authorised dealer where the client and or spouse have an account at various different banks) where after contact should be made with the non-resident or cross border branch of the elected authorised dealer.
3.3.4Excon Exit Levy – the rate, how it is calculated and when it is payable;
3.3.5Cost of a failed emigration where clients return to SA within 5 years and thereafter.
3.4Present at the meeting, be telecon or through file notes as the clients, their tax advisor and accountant if not same and any other advisors such as corporate trustee
4.The SARB Emigration Application M.P. 336(b)
The following information and documentation are to be presented to Excon through the authorised dealer:
4.1Documentary proof of permission to live in the new country, i.e. certificate of citizenship, proof of residency etc. or new passport;
4.2Copies of tax advice taken in the country that they are emigrating to. 5
4.3 Proof of any remaining Foreign Investment allowance available for the family.
4.4New consolidated balance sheet of the family unit using the heading as reflected in the said MP336(b); and client to indicate
4.4.1Assets to be transferred within the next 3-5 years;
4.4.2Assets to be retained in SA as so-called blocked assets. Each class of asset has different requirements before they are effectively placed under control of the authorised dealer.
4.5Where there were any donations made or received within the last 3 years:
4.6Where there is any trust obtain the following:
4.6.2Last 3 years annual financial statements
4.6.3List of any capital distributions (awards or donations) from a trust in previous 3 years
4.6.4History on the funding and formation of the trusts. The client should be made aware of the fact that there is an Excon differentiation between an inter vivos and mortis causa (or will) trust; and
4.6.5Undertaking to ensure trust’s board of trustees are mainly or in the majority, resident in SA
4.6.6Completed forms M.P.1330(a) and M.P.1331 iro income remittances post emigration from the trust based on last Audited financials or Pro-forma for the Financial year-end. No post emigration income can flow until submitted and approved – yet no capital may leave without the 10% Excon exit levy i.e. the trusts’ annual accounts must be filed regularly post emigration
4.7Obtain full details of Insurance policies, Living and Retirement Annuities (including history i.e. age and amounts contributed), Pension Funds; which shall include
4.7.1Contact details of FSB approved broker;
4.7.2Original policy documents which have submitted to the Authorised Dealer as so-called blocked assets although annuity and pension may normally be remittable once emigration is completed;
4.8Name and address of share dealer / stock broker / wealth manager iro of the all the family units as well as the associated trusts; and where client so wish
4.8.1Unlisted shares retained: Obtain share certificates, loan certificates and last 5 years annual financial statements should be filed with the Authorised dealer. Client should be made to understand borrowing limitation may now apply;
4.8.2Listed shares: Letter of undertaking from the broker / wealth manager
4.9List of all credit cards to be cancelled or retained as debit cards as well as all other bank accounts to be consolidated and closed in favour of the single blocked account operated by the non-resident centre / cross border branch of the chosen authorised dealer;
4.10List of all known liabilities which includes:
4.10.1Immediately due and payable income tax and removal costs;
4.10.2Post emigration expenses of liabilities such as cost to maintain family’s holiday home, cell phones etc. As guideline we provide the following amounts which may be taken from blocked funds: R75 000 living allowance for periods spent in SA, R100 000 annual donations, R100 000 property maintenance, all medical expenses but note that the post emigration tax liability must be funded from post emigration income which is normally remittable funds.
4.11Detailed information on all fixed property, share block and time share assets:
4.11.1Require a reasonable valuation of property at date of departure, although there is no SA CGT until the immovable property is sold;
4.11.2Valuation used for both the M.P. 336(b) and for CGT in the new country of residence;
4.11.3Warn client on the new CGT withholding tax rules now applicable to non-resident taxpayers, and finally
4.11.4Obtain original Title deeds or where necessary a certificate and letter of undertaking from the mortgage holder
4.12Debtors and other amounts collectable i.e. funds held in trust by transferring attorney:
4.12.1Need certificate of balance in required format from each debtor (including loans receivable); and
4.12.2Letter of undertaking repayment into blocked accounts
4.13Other assets – Timeshare, motor vehicles, furniture, personal effects etc not exported.
4.13.1Once again valuation and Certificate of Title where applicable; together with
4.13.2Letter of undertaking in the prescribed format;
But excludes any of the following, all of which can leave without a 10^% Excon Levy up to a maximum of R1m (which is subject to review):
4.13.3Chattels, yachts; personal effects and any other assets to be sent out on form NEP (No Export Proceeds Form); therefore
4.13.4Separate NEP for each class of assets i.e. furniture going by ship vs. coins and jewellery being carried out as hand luggage. NEP must be pre-stamped by Authorised Dealers
All current and future liabilities need to be accounted for, including CGT on assets disposed of or retained but deemed as disposed, professional fees and removal / relocation costs. As these liabilities will be settled from blocked funds certificate of balance may be required / loan certificate where it is an intra-group loan to trust or private company