If you’re a South African living overseas and due inheritance from a South African estate, here’s what you need to know about the new process now that financial emigration has been phased out.
This article was originally published on The South African
South Africans over the age of 18 have two allowances for transferring funds offshore per calendar year: A R1 million single discretionary (SDA) (which does not require tax clearance) and a R10 million foreign investment allowance (FIA) (which requires tax clearance). These allowances are often used for transferring inheritance out of South Africa, but you need to have a South African ID book or ID card and, for the FIA, a South African tax number.
South African inheritance prior to March 2021
Where a South African living overseas didn’t have an SA ID (either lost or never issued), financial emigration (FE) was an option to receive the proceeds from a South African deceased estate. FE was a fairly complex process that enabled South Africans to declare themselves non-resident with the South African Reserve Bank (SARB) for exchange control purposes. This was useful because, once you were recognised by the SARB as being non-resident in South Africa, you were able to transfer assets out of the country (such as passive income, dividends, director’s fees, retirement annuities and inheritance), often without further application.
If you were a South African citizen living overseas and you received a South African inheritance, but you didn’t have an identity document or tax number in South Africa, you could undergo a “belated emigration” process instead of using your annual allowance. Like financial emigration, this process went through the SARB and declared you non-resident so that you could receive your inheritance. It was quite straightforward and would only take about a week before the estate could pay funds over to the beneficiary.
The Taxation Laws Amendment Act, which came into effect in March 2021, brought an end to financial emigration and, as a consequence, belated immigration. The SARB also recently released a circular that included a ruling stating that provided the individual (beneficiary) has ceased to be resident for tax purposes and is no longer active on the SARS registered database, they may receive an inheritance (or life insurance policy) of up to R10 million. For amounts greater than R10 million, a manual letter of compliance is required.
The challenge for the beneficiary is proving this status with SARS.
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The current scenario for expats inheriting from a South African estate
- If you have your identity document (ID book or ID card), you have not tax emigrated from South Africa and your inheritance is under R1 million, this is still a straightforward process as you can use your SDA.
- If you have your identity document (ID book or ID card), and your inheritance is over R1 million but under R10 million, you will need tax clearance and a South African tax number (even if it’s dormant) so that SARS can ensure you’re compliant. If you have an SA tax number, this is also a relatively straightforward process.
- If you have your identity document (ID book or ID card), and your inheritance is over R1 million but under R10 million and you don’t have an SA tax number, you will either need to register for a tax number and apply for tax clearance or, in terms of the new ruling, demonstrate you have ceased to be a resident for tax purposes and are no longer active on the SARS system.
- If you were born in SA but were never issued an SA ID document or you’ve lost it, you will need to demonstrate you have ceased to be resident for tax purposes and are no longer active on the SARS registered database. Then you may receive an inheritance (or life insurance policy) of up to R10 million.
- If your inheritance is over R10 million, you will require a special application to SARS and a manual tax compliance letter to transfer it out of the country.
We’ve been helping individuals and businesses make international transfers out of South Africa for over 20 years. For help receiving a South African deceased estate as an expat, you can get in touch at email@example.com or give one of our advisers a call on +27 (0) 21 657 2133.
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