If you live abroad and receive a pension or a living annuity from South Africa, you might be able to obtain a tax directive to ensure that your fund does not deduct Pay As You Earn (PAYE) and pay it to SARS. Here's a rundown of some important factors to be aware of.
What is an RST01 tax directive?
The RST01 tax directive is an application to SARS to exempt South African based living annuities and pensions from PAYE. It is used when a Double Taxation Agreement (DTA) between South Africa and another country overrides South Africa's normal taxing rights.
The directive is primarily applicable to pension and annuity funds, which are designed to provide regular income payments to retirees. Provident funds, which typically pay out lump sums upon retirement, generally do not require an RST01 directive.
Retirement funds that qualify for a payout
Retirement funds play a crucial role in ensuring financial security in the years after retirement and tax considerations remain important when it comes to accessing retirement savings. The RST01 tax directive, issued by the South African Revenue Service (SARS), is a tool to help non-residents avoid paying more than what is required to SARS when receiving retirement fund payouts.
There are five different types of retirement funds which you could get paid out for. These include:
- Government pension – this will always be taxable in South Africa
- Purchased annuities
- Normal pension
- Provident funds
- Retirement annuities
The country in which you live determines where your retirement income is taxed.
Which countries are affected by the RST01 tax directive?
Tax directives are only applicable to certain countries so you will need to confirm DTAs between South Africa and your country of residence. Some of the countries where you are most likely to benefit from the RST01 tax directive are:
- The UK
- New Zealand
- The USA – with very specific laws in place
In general, if you are living outside of a country that you are getting retirement income from, you need to confirm whether the DTA gives taxing rights to your country of tax residence.
When should you submit your tax directive application?
The tax year runs from March to February every year. If you don’t have your tax directive in place, the fund will deduct PAYE off your living annuity and pay it to SARS. If this happens, you likely won’t be able to receive a refund, so it’s important to plan ahead.
Note that directives are now typically valid for three years.
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Tips to get the most out of your retirement funds
- When your funds are paid out will determine when you need your tax directive – Many people delay the withdrawal of living annuity funds and do not have their funds paid out monthly to get the tax directive in place before required by the fund.
- The first living annuity payment should ideally be made in May or June (at the earliest) of the year in which you require a directive – you will then have three to four months to ensure that you have sorted everything out with SARS ahead of the tax year.
- Consider filing an RST01 application – This will give you a gross payment and provide you with the funds to pay your taxes in your country of residence. It is more expensive to transfer funds out of South Africa if you make many small transactions instead of one large transaction.
The ideal RST01 withdrawal method
The first step is to get your tax residency certificate from the other country.
We recommend that anybody doing an RST01 application ensures that they have formalised their tax emigration with SARS because SARS may deny the RST01 application if you have not agreed with them that you have tax emigrated.
Complete your tax emigration by uploading all the correct documents which, among others, include your:
- Application form (SARS or eFiling profile)
- Tax residency certificates from the other country
- Letter from SARS confirming that they agree that you’re non-tax resident
Our qualified tax practitioners can assist you in completing the necessary tax forms and paperwork in order to avoid any delays or penalties.
In some cases, getting a tax directive can be a bit confusing. We offer comprehensive tax services and advice to South Africans both at home and abroad, as well as anyone with South African income. Our tax practitioners can assist you with all of your tax requirements.
Get in touch with us at email@example.com or by calling +27 (0) 21 657 1517.
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