Not formally emigrated?  How does it affect your inheritance?

Death is a topic most of us prefer to avoid, but it’s important to know exactly what to expect when it comes to dealing with claiming an inheritance as a South African living overseas. The finalisation of a deceased estate is often a time-consuming and frustrating process and there is additional complexity and exasperation when one of the heirs is an expatriate living abroad.  If you live overseas and are likely to be the beneficiary of either an inheritance or a trust distribution from within South Africa, some advance planning is needed to ensure that payments due to you can be made.

If you live overseas and have inherited money or property in South Africa from a South African estate, you will fall into one of three categories in terms of South African exchange control regulations.

Category 1: If you are a non-resident of South Africa and were never a South African Citizen, you fall into Category 1. Receiving your inheritance in this instance is a relatively uncomplicated process of providing proof of your non-residency status.  You should then be able to send any South African inheritance out of the country with relative ease.

Category 2: If you have already emigrated in terms of exchange control regulations and are therefore classified as a non-resident, you fall within Category 2.  Your inheritance funds can be transferred to you if you can provide proof or confirmation of your emigration.  You will need to be able to provide a South African Reserve Bank reference number (also referred to as the ECA number) or approval which you would have received when you originally emigrated.

Category 3: If you are a South African resident temporarily living and/or working overseas, you fall within Category 3.  This means that you are considered a resident “temporarily abroad” by the South African Reserve Bank and that you are subject to the same exchange control and financial regulations as people living in South Africa.

If you fall within Category 3, you have the following options available to you to transfer your inheritance abroad:

• You can transfer your inheritance funds using your annual R1 million discretionary allowance (SDA) or your annual R10 million foreign investment allowance (FIA). Should you opt to use your SDA, tax clearance is not required but your green barcoded South African ID book or ID card is needed. Should you opt to use your FIA, you will need a tax clearance certificate, a valid SARS tax number and your green barcoded South African ID book or ID card.

• If your inheritance is over R10 million, you will require a special application to SARS and a manual tax compliance letter to transfer your inheritance out of the country.

What if you do not have a valid SARS tax number, you have never been issued with a South African ID book or ID card or it has been lost?  The Taxation Laws Amendment Act, which came into effect in March 2021, brought an end to the option of Financial Emigration.  Financial Emigration allowed South Africans without an identity document or tax number in South Africa, to undergo a “belated emigration” process instead of using the annual allowances, enabling the transferring of inheritances from South Africa.  Post March 2021, the following options are available:

• If you still have your green barcoded South African ID book or ID card but no South African tax number and your inheritance is more than R1 million, you will either need to register for a tax number and apply for tax clearance or demonstrate that you are no longer a resident in South Africa for tax purposes and are no longer active on the SARS system.
• If you were born in South Africa, were never issued with a green barcoded South African ID book or ID card or you’ve lost it, you will also need to demonstrate that you have ceased to be a South African resident for tax purposes and are no longer active on the SARS registered database.

The challenge lies in proving your non-residency status with SARS.  The most common method of proving your tax residency is with a Tax Residence Certificate. If your new country has a Double Taxation Agreement (DTA) with South Africa, the tax authority in the country will be able to issue a certificate showing that you are a tax resident there and not in South Africa.  A Tax Residence Certificate (TRC) is an official document issued by a tax authority that certifies you are tax resident in that country. They’re necessary because of the tax treaty agreements between countries that determine where residents get taxed and, in many cases, protect them from being taxed twice on the same income in different jurisdictions.

Although obtaining a Tax Residence Certificate from your new country is the most common way to prove your non-residency status, there are certain circumstances where you may be unable to obtain one. (for example, if your country doesn’t have a DTA with South Africa). Other factors that could be taken into account to determine your non-residency status are:

• Tax returns or assessments from your new country of residence.
• Proof of a foreign address.
• The type of Visa on which you have gone to the foreign country.
• A letter from an employer in your new country, confirming your date of employment. If you’re self-employed or own your own business, a letter from your tax practitioner confirming the dates you’ve run your business in the foreign country.
• A copy of your passport/travel diary.
• Details of any property that you may still have available in South Africa and the purpose that such property is being used for.
• Details of any business interest that you may still have in South Africa.
• Details of any family members still living in South Africa and the reason thereof.
• Details of your social interests (e.g. gym contract, recreational clubs and societies) and location of your personal belongings.
• Details of any return visits to South Africa, the frequency thereof and the reason for undertaking such visits.

It is recommended that you make use of a professional and knowledgeable service provider with specialist knowledge of South African exchange control regulations and SARS requirements to assist with the process of transferring your inheritance abroad.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.