The Budget Review 2021 includes a proposal to impose a deemed retirement withdrawal tax on retirement assets of emigrants as an exit tax. According to Joon Chong and Wesley Grimm of leading law firm Webber Wentzel the proposal is unclear and has numerous issues.
Chong and Grimm point out that data from various sources suggests that around 23 000 South African tax residents emigrate each year in search of greener pastures. Currently, individuals who cease to be tax residents pay an exit tax on their worldwide assets, with certain exclusions. At present, immovable properties and retirement funds that remain invested in South Africa are excluded from the exit tax net.
According to Webber Wentzel, National Treasury proposes in the Budget Review 2021 (Budget) to include the SA retirement funds of an emigrant within the net of assets which are subject to an exit tax. “Emigrants will be deemed to have withdrawn from their retirement funds in full on the day before they cease to be SA tax residents which will result in a deemed retirement withdrawal tax (“RWT”). However, payment of the RWT will be deferred until actual payments from the funds or on retirement if the funds remain invested in South Africa.”
“The proposal in the Budget is unclear and appears to suggest that the RWT plus interest will be withheld against actual payments received by the emigrants in the future from the retirement funds.”
There is no effective date mentioned in the Budget.
Click here to read the Webber Wentzel media release that further unpacks the proposal.