Cross-border finances for saffas abroadFinancial tools, rules and tips for South Africans living or working abroad
Know your rights ☆ Understand your obligations ☆ Find resources
What is foreign exchange?
Foreign exchange is the exchange of one currency for another. Essentially you are buying one form of currency with another and these currencies tend to have different rates and these rates fluctuate.
Most people refer to foreign exchange simply as forex.
Is foreign exchange regulated?
Yes. By South African law all financial transactions occuring accross borders must comply with exchange control regulations. These exchange control regulations are determined by the South African Reserve Bank (SARB) and require that al transactions be verified, legal and comply with the required taxation and transactional protocols.
Why do forex rates differ?
There are various reasons why exchange rates differ.
Firstly, since buying and selling of currency occurs throughout the day, financial services providers authorised to deal in forex transactions have different frequencies at which they update and calculate rates. This makes it easier for them to streamline forex transactions.
Forex traders can also choose which rates to display – the lowest (bid) rate at which people are willing to sell, the highest (ask) rate at which people are willing to buy or the median rate which is the average exchange rate. Traders also usually display the rates which they are wiling to offer customers, whereas non-forex sites may display market rates instead.
Banks will usually also add the transactional fees required for exchange.
What is the difference between emigration and financial emigration?
When you emigrate normally – as in relocate to a different country – you are deemed an emigrant of your former country. But even though you’ve moved abroad, that doesn’t mean your financial affairs back home are concluded. In fact, many South African expats aren’t aware that they remain tax residents of South Africa while living abroad and that their finances are therefore still regulated by South African exchange control rules. This is where financial or formal emigration comes in.
Financial/formal emigration is the process of concluding your financial affairs in South Africa to become a non-tax resident of your old country. The process doesn’t affect your citizenship in any way, but simply formalises the transfer of your financial jurisdiction to your new home. Essentially this means your financial affairs will now be governed by the tax system and financial regulations of your new country.
What are the benefits of financial emigration?
The biggest benefit of financial emigration for saffas living abroad is simply the administrative ease. Understanding one tax system with its regulations is hard enough – not to mention remembering all the different deadlines, application forms, requirements, obligations and threshholds which apply to the different financial portfolios in different countries. Financial emigration simplifies things in that you will only need to concern yourself with understanding the rules of your new country. This also reduces the possibility that you might accidentally break the law and face penalties.
One of the reasons South Africans choose financial emigration, though, is due to the financial benefits it offers them.
Financial emigration releases you from the exchange control regulations imposed on South African tax residents. One of those regulations prohibits South African tax residents from encashing their retirement annuities before retirement age. Essentially these funds are tied up until retirement age if you’re still a tax resident, but once you’ve emigrated financially you’re allowed to transfer the proceeds of your retirement annuities abroad and you can use these funds for any purpose you desire. These funds can be withdrawn before or after retirement age as the withdrawal is not deemed a “retirement” after the age of 55. The other issue as a South African tax resident is that you’re only allowed one lump sum withdrawal from your pension, provident or preservation funds. Financial emigration doesn’t sidestep this regulation but you ARE allowed to transfer the remainder of these retirement funds to your retirement annuity, after which you can emigrate financially and transfer the proceeds abroad as per normal financial emigration rules.
There are additional benefits for South Africans once they’ve transferred their money out of South Africa. Unfortunately you won’t be able to avoid paying the required withdrawal tax on your policies, but many countries offer incentives for reinvesting your money in local retirement schemes. In the UK you can, for instance, utilise the Pension Incentive Programme which will incentivise you for reinvesting your funds in the UK. Furthermore, you could also stand to benefit from earning interest in a stronger currency and a more stable economy.
How does the financial emigration process work?
Are South Africans allowed to use their South African credit and debit cards abroad?
Indeed, you are allowed to transact with your credit and debit cards abroad, but there are rules and limits to this usage.
When may I use my South African debit and credit cards abroad?
- You may use your cards freely within the Common Monetary Area.
- You may use your cards within the calendar year that you commenced travelling. This allowance is forfeited with immediate effect on the start of the subsequent calendar year.
- You may use your cards abroad
- The transactional spend on these cards may not exceed the annual travel allowance allocated to the individual.
Why is my bank urging me to use my cards abroad?
Since it’s easier to transact across country borders with a simpe card swipe, your bank will undoubtedly urge you to use your credit or debit card abroad. You must bear in mind that your bank may not be privy to your travel plans and will most probably assume you’re to use your cards within the SARB stipulations.
Your bank is not allowed to extend your card usage beyond the December 31 cut-off date and you may only continue usage of your cards if you’ve first returned to South Africa – after which you can use the subsequent calendar year’s allowance. This allowance will not be authorised until you’ve returned to South Africa first.
Since your bank is not the authorised entity which regulates your international spending, any clearance for irregular spending needs to be made through the South African Reserve Bank, and the bank is therefore not liable for monitoring or advising on this card usage.
It’s therefore your own responsibility to verify the rules and regulations of your offshore transactions.
What are the penalties for non-compliance?
If you contravene these rules, SARB could slap you with a penalty of up to 40% of your irregular spend (the spend exceeding your allowances or extending beyond the allowed date).
Unfortunately many South Africans plead ignorance in these cases and also may not be aware of the contravention as they may not have informed their financial services providers of their travel plans or change of address.
Since SARB doesn’t apply these penalties immediately or automatically, there may also be a delay in the application of such penalties, which means you could be in for a surprise.
What are annual allowances?
South Africans living abroad who are still tax residents of South Africa are allowed to transfer a set amount of money offshore within each calendar year. There are two types of allowances which can be used, the discretionary allowance and the investment allowance. All money which leaves South Africa can be transferred under either of these allowances and the nett total of these transfers accumulate to the annual thresholds of each respective allowance.
What is the discretionary allowance?
The discretionary allowance allows for the transfer of up to R1 million per person per calendar year for any purpose. To utilise this allowance, you will need to present a copy of your ID or smartcard which is used for reporting purposes. If you’re travelling outside the Common Monetary Area you will also need to present your passenger ticket to the authorised dealer when transacting.
What is the investment allowance?
The investment allowance allows for the transfer of up to R10 million per person per calendar year. To utilise this allowance, you will need a tax clearance certificate as well as an ID or smartcard.
What about travel allowances?
South Africans living or travelling abroad may utilise a travel allowance, but this allowance will form part of the R1 million annual discretionary allowance. Residents under the age of 18 can utilise a maximum R200 000 annual travel allowance.
What if I want to transfer/invest more than R11 million per year?
You can make a special application to the Financial Surveillance Department of SARB for special dispensation.
What are the annual Krugerrand coin allowances?
South African citizens may be allowed to export Krugerrand coins via their bank. The amount is at the discretion of SARS Customs Declaration which currently stands at a R30 000 equivalent for residents, and 15 coins per non-resident as gifts.
How much cash can I travel with?
If you’re travelling abroad, you’re allowed up to R25 000 in Rand notes.
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