There are many reasons to retire or emigrate to Malta. The 3000 hours of sunshine a year comes to mind, also the affordability of the Mediterranean lifestyle. Some expats say they live on R 35 000 per month. A dinner for two at a nice mid range restaurant, including a glass of wine can cost about R 600.
Thanks to Malta’s excellent—and inexpensive—transportation system, it’s easy to get around the tiny island without a car, particularly if you live on the coast. Language is why many people mentally cross off the idea of a European retirement, but no need to worry as English is an official language in Malta.
What is a financial emigration?
When leaving South Africa to settle in another country, concluding your financial affairs, means changing your status from resident to non-resident. This is for exchange control purposes. Emigration does not affect your South African birth right, citizenship or the right to retain your South African passport – because once a South African always a South African.
As a financial emigrant you may transfer offshore:
Along with your retirement annuity, as a financial emigrant you may – over and above your annual Discretionary Allowance of R1 Million and your Foreign Investment Allowance of R10 million – also transfer any of the following funds abroad:
- the proceeds of your retirement annuity, even before age 55
- South African source inheritance
- the proceeds of assets declared in your emigration application
- passive income, i.e. rent, dividends, director’s fees, salary for services rendered in South Africa and income from discretionary or vesting trusts
- proceeds from a third party life policy
Important to keep in mind:
- for exchange control purposes your South African bank account becomes a blocked rand account which is subject to regulatory restrictions.
- your remaining South African based assets, and transactions from this account, will be controlled by the bank holding your blocked account.
- your tax affairs must be in order and up to date.
Your retirement Annuity, cashing it in and moving the proceeds abroad
The process of financial emigration (also called formal emigration) is one of the processes South African expats retiring or relocating abroad need to complete.
You are now able to cash out your retirement annuity funds before you reach the age of 55 by completing the financial emigration process. This is thanks to changes in tax legislation made in 2008.
The funds can be used for any purpose, wherever you choose – you don’t have to reinvest into a local pension.
Benefits of cashing in your retirement annuity and moving your funds abroad
- By moving your funds abroad there are no early withdrawal product penalties as the withdrawal process allows you to access your annuity capital as long as you pay the withdrawals tax liability.
- Withdrawing your funds to protect them from the volatile effects of the Rand by moving to a more stable economy.
- By withdrawing your retirement annuity if you plan to retire overseas, means you can make use of it in the currency of your adopted home,which makes life easier as it allows for better matching of assets to liabilities when calculated in the same currency.
What is the process of cashing in your retirement annuity now that you are an expat?
In accordance with South Africa’s exchange control rules, and because you’re cashing out a potentially large sum of money, the South African Revenue Service (SARS), the South African Reserve Bank (SARB), your insurers and a commercial bank will need to be involved.
Before you make your decision, know how much you can transfer, know the notice period and withdrawal procedures, know how long it will take and the costs involved.
Once you’ve received the necessary clearance from SARS (and paid any applicable capital gains tax on your capital assets), you’ll get a tax clearance certificate which lets you make the withdrawal to convert your retirement annuity savings into cash. Your proceeds will be taxed according to the withdrawal lump sum tax table.
Lump Sum Tax Table
|AT RETIREMENT||TAX RATE||WITHDRAWAL||TAX RATE|
|R0 – R500 000||0%||R0 – R25 000||0%|
|R500,001 – R700,000||18%||R25 001 – R660 000||18%|
|R700,001 – R1,050,000||27%||R66,001 – R990,000||27%|
Source: South African Revenue Service