Warning for South Africans retiring overseas

The South African Revenue Service (SARS) has implemented major tax directive changes that will affect how South African expats withdraw retirement funds.

Tax Consulting SA’s team lead of cross-border taxation, John-Paul Fraser, and retirement and pension fund specialist, Shuanita de Wet, warned that proper non-resident status and expert tax advice are more crucial than ever to avoid delays, rejections, or lost refunds.

On 8 April 2025, SARS announced a set of updates on tax directive system changes which will impact South Africans who have already left the country or are in the process of cutting tax ties. This will come into full force on 11 April 2025.

“The first relates to Emigration Withdrawal, which the Cessation of South African Residence application for the withdrawal of retirement interest replaced,” Fraser and De Wet explained.

This change came into effect on 1 March 2022, which was followed by a transitional period up until 1 September 2024.

During this period, the rules of various retirement fund types included provisions that allowed members to access their full interest.

This applied to preservation funds or retirement annuity funds upon termination of membership due to emigration.

These provisions were deleted with effect from 1 September 2024.

SARS announced that the system will no longer accept any tax directive applications submitted on or after this date for “Emigration Withdrawal”, as it was replaced by the system of Cessation of South African Residence.

“For South Africans abroad who haven’t aligned themselves with the updated ‘cessation’ process, risks delays, rejections, or unnecessary tax complications,” they warned.

“This emphasises the importance of ensuring your tax residency status is correctly reflected as that of a non-resident at SARS. Do not assume your status is correct.”

With increased scrutiny and digital enhancements on SARS’ end, taxpayers need to ensure that they’re one step ahead.

They strongly recommend starting with a SARS diagnostic review before taking any further action. This review plays a pivotal role in ensuring adherence to expatriate tax laws and exemptions, thus reducing the likelihood of triggering unforeseen tax liabilities.

Expats must use eFiling

Fraser and De Wet said that expats must now submit the RST01 tax relief application for pensions and annuities online since manual submissions are no longer allowed.

This submission will be replaced by eFiling and must be submitted with supporting documents for processing.

“On face value, with the implementation date being anticipated, it seems that this change is an effort to make it easier for non-resident taxpayers to benefit from a refund where a Double Tax Agreement (DTA) is in place,” they said.

“However, the submission must meet the SARS requirements.”

They said non-resident taxpayers should seek expert guidance in international tax law when making these submissions.

This applies to both foreigners who once worked in South Africa and South Africans who have emigrated but still hold annuity or pension funds locally.

Fraser and De Wet also cautioned that South African tax refunds for pensions and annuities may now take longer.

From 11 April 2025, SARS will also discontinue the RST02 request by a non-resident for a tax refund for pensions and annuities in terms of a DTA. It is anticipated that this will form part of a tax return moving forward.

SARS announced that a possible refund might become payable upon submission of a tax return during the assessment.

“This may make it more complex to get your tax refund, and therefore it is critical to submit an accurate tax return,” Fraser and De Wet said.

“Once again, expert tax advice will help, as in practice, we found SARS does not just pay out when receiving a request for a refund.”

They added that, in many instances, the taxman will request additional documents to adjudicate the refund.

“While we await further clarification from SARS on the supporting evidence it will require, it is clear – the stakes just got higher for non-residents with a preservation fund or retirement annuity fund,” they said.

“Given the ever-evolving nature of tax laws and the increased scrutiny by SARS, experts at the forefront of international tax laws are best placed to navigate this updated process and avoid compliance pitfalls.”