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The current climate of economic and political uncertainty means that the wealthiest South Africans are taking significant amounts of money out of the country, either through investments abroad or through physical migration, says Tim Powell, head of foreign exchange at Sable International.
Depending on why you’re taking money abroad, Powell said there are a variety of considerations you need to keep in mind before proceeding.
As a starting point, Powell suggests that you think about key questions like:
- How much money can you transfer?
- Do you need to open a foreign bank account?
- Where will the money be invested?
- Can you leave your South African bank account open?
- If you migrate, what do you do with the remaining assets, for example rental property, stocks, retirement annuities?
Regarding the exchange control of the SARB, the residents of South Africa are entitled to two annual allowances:
- Rand 1 Million Discretionary Allowance (DA) – Can be used for travel, gifts, studies, alimony, and foreign investment without having to apply for tax settlement
- Rand 10 Million Foreign Investment Allocation (FIA) – Requires tax clearance for foreign investment
“The allocations of 1 million DA rand and 10 million FIA rand run from January 1 to December 31,” Powell said.
“Tax clearance requests for foreign investment have been taking longer than normal with Covid, so it is advisable to submit requests as soon as possible. Also, since mid-December, SARS tends to shift to core staff and the probability of obtaining approval decreases the later you abandon your application. “
“Even if you have used your 2020 allowances, it is a good time to get your tax clearance and make sure that from the first week of January 2021 you can start using your 2021 allowances.”
Powell said there are generally three types of circumstances in which South Africans will take money abroad:
Invest abroad
South Africans living in the country can have bank accounts abroad and invest abroad. It still amazes me how many clients still think this is not legal, Powell said.
“Establishing a bank account abroad is a relatively simple process. We can easily open accounts abroad in the Channel Islands that can be denominated in pounds, dollars or euros. We can also open some EU accounts on land.
“Many people who want to invest abroad may have waited this year to see if there has been any recovery in the Rand after the volatile year we have had, and now urgently need to submit their applications to make the grant limit of this year. “
For those investing abroad, people often choose to use their bank to move money, where it may be more profitable to use a forex broker, Powell said.
Emigrating
There are those who emigrate who are inevitably selling their homes and liquidating assets, Powell said.
He said that those who plan to migrate and move their investments should obtain a professional evaluation of their personal circumstances, specifically considering:
- Investment rights
- SARS tax settlement requests for foreign investment
- Emigration and cross-border tax implications
- Maintain bank accounts in SA
“If you leave South Africa as a family unit (eg husband and wife), you will have an allowance of 22 million rand in the year of departure that you could transfer, plus additional annual allowances for your children depending on their ages,” he said.
Powell said some may need to consider financial migration if they want to access their retirement annuity savings.
“It can be a confusing time with all the exchange control rules and banks are quick to suggest that you migrate financially. This would require you to fill out a form called MP336 and close your bank accounts in South Africa, transferring everything to an account locked in rand.
“However, financial migration is only necessary in specific circumstances and you should get professional advice from migration specialists before taking drastic action,” he said.
He said other South Africans may need to consider tax emigration. However, he cautioned that this is a complex process and that each situation must be assessed individually.
Invest in Plan B
Powell said there is also a group of investors who stay in South Africa, but who are looking for a plan B, who are effectively seeking “investment migration.”
“Typically these are high net worth individuals who have the ability to invest in countries that have programs that allow residency or citizenship, such as Portugal, US EB5, Malta or Montenegro,” Powell said.
Read: 3 Alternative Taxes Proposed For South Africa Including Income Tax ‘Replacement’
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