By Jonty Leon and Reinert van Rensburg
The receipt of an inheritance from South Africa requires the expatriation of funds from a South African bank account, and the applicable Authorised Dealer (South African bank) needs to be certain of the beneficiary’s tax status to adhere to exchange control rules and regulations.
Since the concept of “emigration” as recognised by the Financial Surveillance Department was phased out in 2021 there is an abundance of confusion and misconceptions amongst the South African expatriate community in respect to the exchange control requirement when receiving a South African inheritance whilst abroad.
The Currency and Exchanges Manual for Authorised Dealers that determines the limitations within which Authorised Dealers may transact in foreign exchange now only refers to “individuals who cease to be residents for tax purposes”.
As a result, an individual's tax status when receiving a South African inheritance and expatriating funds from South Africa becomes important for the purposes of exchange control rules, and the status is critical for Authorised Dealers to ensure they operate within the ambit of South African exchange control.
South Africans permanently living abroad often have family left in South Africa, from which they are due to receive an inheritance, and the expatriation of the inheritance tends to be a huge stumbling block for Saffa beneficiaries.
The importance of a Non-Resident tax status when inheriting
The importance of formally emigrating from South Africa is underlined when funds need to be transferred abroad and exchange control rules and regulations need to be considered.
Up until March 2021, the formal emigration process was done through the South African Revenue Services (SARS) as well as the South African Reserve Bank (SARB). When the Financial Surveillance Department removed the concept of “emigration” for exchange control purposes, the process changed, and the emigration only needs to be dealt with by SARS.
Non-residents need to meet the following requirements to allow Authorised Dealers to transfer funds abroad:
- Formally ceased to be a resident for tax purposes in South Africa
- Obtained a TCS-Pin for “emigration” from SARS
- Need to be up to date with their taxes in accordance with their tax status
South Africans who have emigrated and formally ceased their tax residence to ensure the above-mentioned requirements are met can transfer up to R10 million as long as the TCS-Pin for Emigration is valid. Once the TCS-Pin for Emigration has expired and the non-resident individual needs to expatriate funds, they will need to obtain a TCS-Pin for Foreign Investment Allowance from SARS.
What if you were never registered at SARS?
Although the Exchange Control Manual stipulates that individual who cease to be residents for tax purposes but were never registered on the SARS database are able to expatriate up to R10 million without the need for a TCS-Pin for "emigration," they must still provide proof of their non-resident tax status to the Authorised Dealer. Non-residents who are not registered on the SARS database, therefore, need to obtain a “Notice of Non-Residence Letter” from SARS to allow an Authorised Dealer to expatriate their funds.
Due to the current system used by SARS to generate the letters, it may be impossible for these individuals to obtain a "Notice of Non-Residence Letter" without a tax number. However, if the individual needs to expatriate any type of retirement funds, registration with SARS will be mandatory.
If you left South Africa with your parents before even obtaining a tax number, you can still expatriate your inheritance capital if your parents are in possession of the required documents and if they formally emigrated from South Africa when they initially departed to live abroad permanently.
If your parents did not formally emigrate from South Africa and are therefore not in possession of the required documentation, you will need to formalise your non-resident tax status with SARS to be able to expatriate the funds to a foreign bank account.
How to meet the requirements
Certain information to formally “cease to be a tax resident” from South Africa needs to be declared to SARS by applying for the required Emigration Compliance. The individual who intends to become a non-resident for tax purposes needs to simultaneously declare their non-residence and deal with the deemed disposal of their assets in terms of section 9H of the Income Tax Act.
This process was formally known as “Financial Emigration”, but with the changes to the process it is now commonly known as “Tax Emigration”. If you are leaving the country permanently, the process must be dealt with notwithstanding whether you need to expatriate funds or not.
If the Tax Emigration was correctly dealt with, you will be in possession of a TCS-Pin for Emigration (a document used by third parties to confirm the taxpayer’s tax status and that their tax affairs were correctly dealt with) as well as a Notice of Non-Residence letter (confirmation document that SARS recognised the individual as a non-resident for tax purposes).
The Authorised Dealer will be allowed to expatriate a non-resident’s funds if these documents are provided to prove the necessary requirements were met.
Jonty Leon and Reinert van Rensburg are expatriate tax legal specialists at the Leap Group