The standing Pension Fund Act and the Income Tax Act permits withdrawal from a retirement annuity fund if:
- Member is in the process of emigrating
- Member has already emigrated from South Africa
- Member’s Visa had expired
In light of the above, the amended Income Tax Act in 2015 allowed access to retirement annuity funds as from the 1st of March 2016 upon cessation of being a tax resident of South Africa. However this amendment resulted in a broader interpretation of the above three provisions. Thus, South African Revenue System and Treasury draw up The Taxation Laws Amendment Bill (8 July 2016) to rectify the anomaly.
Emigration Clarification
According to the South African Reserve Bank (SARB); The Exchange Control Handbook determines that all South African residents are able to emigrate and reside in any other country outside the CMA (includes Namibia, Lesotho, Swaziland).
Therefore a resident is someone that is permanently resident or domiciled in South Africa, including a foreign national living in South Africa on a permanent basis. In instances where a foreign national enters the Republic on a temporary Visa and that person makes a declaration to the authorised dealer, he/she upon Visa expiration will not be able to emigrate and upon cessation of the Visa will result in access to the retirement annuity.
In the event that the person cannot emigrate or there is no Visa that will expire, access to the retirement annuity will be confined until retirement, disability or death (or if the retirement annuity is made paid up and the value in the fund is less than R7 000.00). Additionally, non-member spouse is also entitled to have access in terms of a divorce order.
Key Note
Access to a retirement annuity as a result of emigration or cessation of a Visa is limited to any time prior to the retirement date being reached and no withdrawals will be entertained after the retirement date. If retirement date is reached as stipulated in the fund rules, the recipient will only be entitled to a third of the lump sum and two thirds to a compulsory annuity which will pay a regular income.
Requirements to Access The Fund Due to Emigration
If a member is in the process of emigrating, the following supporting documents are required
- Tax clearance certificate (IT21[a])
- A signed and bank stamped MP336 (b) form
If a member has already emigrated
- Member’s certificate of residency obtained from the Tax Authority of the present domiciled country will only be accepted in accordance with the double taxation agreement between South Africa and the country of present residence. In circumstances where there is no double taxation agreement between South Africa and the present country of residence, an immigration and Citizenship Certificate can be accepted.
- A copy of the Tax clearance certificate in respect of emigration issued by SARS. Additionally, if member has emigrated for more than five years and is not in a position to produce the Tax Clearance Certificate, an accompanying affidavit must be furnished under oath.
Requirements to Access Funds Due to Visa Expiration
- A copy of the certificate of residence obtained from the pertinent Tax Authority of the permanent resided country
- A copy of the passport validating departure from South Africa
- A copy of the Visa depicting the expiration date issued under the Immigration Act
Tax Implications
The South African tax system is based on residency, hence when one emigrates, the tax system converts to source-based system, thus the lump sum withdrawal amount from the fund will be subject to income tax in accordance with the Second schedule to the Income Tax Act, regardless of the two tax systems facets mentioned above.
Moreover, if the person abides in a country where the amount is also tax payable, the double taxation agreement that exists between South Africa and that country will dictate tax jurisdiction. The source-based tax system is applied, however. Coupled with that, a tax credit allowable is paid in the country of source.
If withdrawal was due to Visa expiry, the net amount is remitted offshore and if withdrawal was as a result of emigration, the net amount forms part of overall emigration allowance limits
