Suzean Haumann and Malissa Conlin
As with any estate issues, there are many matters to be aware of and consider. Especially if you are not living in SA but are due an inheritance from a South African estate.
A person who has no ties to South Africa in any way would naturally be regarded as a bona fide non-tax resident of South Africa, however proof of your non-residency status will need to be provided to the executor of the estate.
This can be done by furnishing them with a copy of your passport (with proof of exit stamp), visa, together with documentary proof that you are paying tax in a foreign country as well as a letter from your former banking institution confirming that you have formally emigrated.
Many South Africans assume that they are non-residents when they have been living abroad for many years. From a regulatory standpoint, this is not the case.
You are only formally a non-resident taxpayer when you have formally emigrated through the tax migration process recently introduced by SARS.
Although the whole concept of financial emigration has now fallen away completely, with the implementation of tax migration.
If you have not formally emigrated or undergone a tax migration since the implementation of the new regulations which came into effect on 23 February 2022, you will still be seen as a SA resident.
This means that you are still restricted by SA exchange controls, and you are only allowed to repatriate your annual Foreign Capital Allowance (FCA) of R 10m (whilst also needing to obtain an Approval for International Transfer – formally known as a tax clearance certificate) or R1m Single Discretionary Allowance (SDA), coming into effect on 25 April 2023.
This process of application has become extremely onerous since this came into effect.
In the event that you are still regarded as a SA resident for tax purposes and set to inherit more than R11m, one is able to externalise more than the R11m in allowances by applying to SARB for a special approval which is a 2-step process.
It is extremely important that if you were ever a SA resident, you should retain your green bar-coded ID or smart card, as this document will be requested, no matter how long you have been living abroad unless you formally emigrated.
In the event that you are not in possession of a green barcoded ID, you will be required to apply for a smart ID card due to the SA exchange control regulations.
Here are some additional things to keep in mind if you are a non-resident inheriting money from a South African estate:
- You may be required to also pay tax on the inheritance in the country where you are a resident unless a double taxation agreement is in place between SA and the country in question.
- You may need to obtain an Approval for International Transfer (AIT) from the South African Revenue Service (SARS) before you can transfer the inheritance funds out of South Africa if the amount is larger than R1 million.
- You may need to pay exchange control fees when you transfer the inheritance funds out of South Africa.
- If you have no ties to SA (meaning you were not born nor reside in SA) the process is simple. A bank account would be opened in the name of the estate late, and funds will be transferred into the non-resident’s elected foreign banking account.
- If you were born in SA or residing overseas but have not formally emigrated or tax migrated, a South African Temporary Abroad account will need to be opened in your name and you will be subject to the exchange control restrictions before inheritances may be transferred to you.
- If you were born in SA and do not hold a valid barcoded ID document and have not tax migrated, you will be required to obtain a barcoded ID. This will then allow you to externalize your inheritance by utilising your R1m and R10m allowance. SARB clearance will be required for inheritance values greater than R11m.
Inheriting offshore assets as a South African resident also has implications.
Before 23 February 2022, a SA resident had to declare offshore inheritances to the South African Reserve Bank (SARB) to note that they did not make use of their annual allowance.
This has now changed because of CRS (Common Reporting System). A system that is in place between various countries, therefore SARS can easily pick up that you own/inherited an offshore asset.
What is important to note is that if the inheritance of an offshore asset fell before this date the beneficiary is still obligated to request approval from SARB in order to receive this inheritance or keep it in their name.
In the event that you did not report this asset being inherited, you can incur penalties from SARB. You also might face difficulties to remediate the problem in the event that you want to fix it years later.
It is important to consult with a tax advisor and an exchange control specialist to understand your specific obligations and to ensure that you comply with all applicable laws and regulations.