Many South Africans living abroad aren’t aware of their rights and the possible tax relief available to them if South Africa has a Double Tax Agreement (DTA) in place with their new country of residence. If you are one of those individuals, then listen up as we give you the low-down.
Taxing rights on pension income under a tax treaty
A non-resident individual will generally be taxed on income which is from, or deemed to be from, a South African source. This taxation may, however, be curtailed by the relevant DTA between South Africa and their country of residence.
South Africans living abroad can turn their retirement annuity into cash and transfer the funds to their new home before or after the normal retirement age of 55. The amount available will depend on various factors such as fund rules, type of fund and previous withdrawals. These pension withdrawals should be managed in the most tax efficient manner by making use of the provisions contained in the DTA.
However, most South African emigrants are not aware of the possible benefits of a DTA.
Tax planning to improve tax efficiency
Provisions contained in a DTA provide for a lucrative tax planning opportunity. Tax planning can be defined as a process which reduces one’s tax liability to a minimum through legitimate resources and provisions. As everything is done by the book, tax planning cannot be seen as tax evasion, it is simply a way of optimising one’s tax returns within legal bounds.
A treaty like the DTA is therefore a useful tool to reduce your overall tax bill if executed correctly.
How much do you stand to gain?
South Africans considering relocation abroad or those who have already packed up and shipped off should consider the positive implications of reduced tax under the provisions of the DTA. The difference in tax payable will, of course, depend on the respective tax rates, tax treatment and value of their retirement annuity fund in a foreign currency as a result of the struggling Rand.
Tax rebates and relief are calculated on an individual basis. The first step would be to determine your tax residency status. Unfortunately changing tax residency is not as easy as hopping on a plane and each individual’s circumstances will have to be reviewed to determine their status. But this process is in your best interest, whether you are already living overseas, in the process of moving or have already received a pension fund pay-out.
Not sure if you can claim tax relief?
FinGlobal can review all the relevant factors and circumstances to ensure that your pension payment was or will be dealt with in the correct manner under the DTA. The consequence will most likely be a saving on the tax paid and will become a handy windfall.
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