The issue is more complicated for non-residents who left their retirement annuity fund behind. We receive many queries from former residents, who want to know how they can access their balance, and whether they are still required to buy an annuity in South Africa.
In terms of our tax law, investors may not “retire” from their RA before the age of 55. On retiring, they must purchase an annuity with at least two-thirds of their fund balance EXCEPT if the aggregate value of all RAs at retirement held in one RA fund is less than R247, 500. The entire amount may then be paid out as cash.
If you have left SA, and you fall below this limit, and you are over 55, and you still have an SA bank account, then this is the most practical option to access your RA.
Otherwise, there are four exceptions that allow you to access your RA as a cash lump sum.
Accessing your RA as a cash lump sum
You may withdraw from an RA and take the full amount as a cash lump sum in the following circumstances: the aggregate value of your RAs is less than R7 000; early retirement due to ill-health; and on becoming a non-resident.
Until 31 December 2015, to access your money as a cash lump sum after leaving SA, you had to go through the formal financial emigration process with SARB/SARS. This is no longer necessary. Since January 2016, you can access your cash early, and as a cash lump sum, provided you are no longer resident in SA. This is in terms of the Tax Law Amendment Act, 2015.
Note that once you reach your RA’s normal retirement age (defined either by the policy maturity date by the normal retirement age set in the fund rules) then you no longer have the option to withdraw the full amount as a cash lump sum, even as a non-resident – you must annuitise at least two-thirds (subject to the R247,500 annuitisation threshold)
How do you prove you are no longer resident? Your fund manager will have to specify what paper proof they will require. But here is some guidance from SARS on this issue:
“Any natural person who is not ordinarily resident (common law concept) in South Africa during the year of assessment but meets with all three requirements of the physical presence test, will be treated as being a resident.
A person will be considered to be ORDINARILY RESIDENT in South Africa, if South Africa is the country to which that person will naturally and as a matter of course return to after his or her wanderings. It could be described as that person’s usual or principal residence, or his or her real home.
The PHYSICAL PRESENCE TEST refers to the number of days that a natural person must actually be present in South Africa, during a year of assessment and also during the five years of assessment preceding the year of assessment under consideration, to be considered a resident.
These requirements are that the person must be physically present in the Republic for a period or periods exceeding –
(i) 91 days in aggregate during the year of assessment under consideration;
(ii) 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and
(iii) 915 days in aggregate during the five preceding years of assessment.
If the person is not ordinarily resident, or does not meet the requirements of the physical presence test, that person will be seen as a non-resident.
So when can you claim as a non-resident?
The quickest way to FAIL the physical presence test is to fail test (i) in the section above.
Per SARS Interpretation Note No 4 (dated 12 March 2014), “a natural person, who is resident by virtue of the physical presence test, ceases to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days. Residence will cease from the day after the person left the Republic.
The continuous period of 330 full days cannot be observed over a single year of assessment, because the person must have been physically present in South Africa for at least 92 days during that year in order to qualify as a resident during that year of assessment. The continuous period of at least 330 full days will therefore always extend over two years of assessment.
A natural person, who is ordinarily resident, spending time outside the Republic and who intends on returning to the Republic after his or her wanderings, is regarded as a resident, regardless of the period of time spent outside the Republic.”
The downside of being classified a non-resident is that you can no longer transact through your old SA bank account. Instead, you have to open a non-resident (aka blocked rand) account. Your fund administrator will have to pay the proceeds into that account. From there you can take this money offshore. The main South African banks will all be able to help you with this.
But what if you left quietly, without saying goodbye to SARS? One issue (your issue) is that the administrator cannot pay out your RA without first obtaining a tax directive from SARS (the South African Revenue Service). So if you took French leave some years ago, SARS may no longer know who you are. This means you must first establish your identity with SARS, possibly by reviving you old tax or identity number. You may then have to resolve any outstanding matters on your file.
Who has taxing rights?
The SA Income Tax Act is your first reference point, but this may be affected by the existence of a Double Taxation Agreement between SA and the country of your present tax residency. Per SA tax law, your proceeds would be taxed as a lump sum withdrawal (hence the administrator’s need to get a tax directive from SARS). Assuming you have not previously cashed in a South African retirement fund, you will receive the first R25 000 tax free; the balance to R660 000 is taxed at 18%, the balance to R990,000 at 27% and all amounts above R990 00 at 36%.
If you do not qualify as a non-resident, your money will be paid out per SA retirement law. This means you can only take one-third as a cash lump sum, with two-thirds you must buy an annuity.
Good news for (non-South African) expatriates!
The current provisions do not allow for (foreign) expatriates to withdraw a lump sum from their retirement annuity when they cease to be tax resident in South Africa or when they leave South Africa at the expiry of the work visa.
The definition of “retirement annuity fund” in the Income Tax Act only allows South Africans nationals who emigrate to another country and whose emigration is recognized by the South African Reserve Bank, to claim a lump sum payment in respect of their retirement annuity.
Currently, expatriates who cease to be tax residents, or leave South Africa at the expiry of their work visa, are not regarded as having emigrated by the South African Reserve Bank and therefore cannot claim a lump sum payment from their retirement annuity funds.
The definition of “retirement annuity fund” is to be amended to also allow for these expatriates to claim a lump sum from their retirement annuity fund when they leave South Africa.
This new rule will be effective from 1 March 2016.