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The 3 year rule that isn’t (YET)

Updated: Oct 21, 2021

I’ve had a few queries about emigration from SA and the “new 3 year rule” that will effectively stop SA emigrants from withdrawing funds from their RA’s when they formally migrate from South Africa

By way of background, Minister Mboweni indicated in his last budget speech that there would be changes to the exchange control rules with a view to phasing out the SARB emigration process. As the plan stood then, SARS would implement a residency test effective 1 March 2021. This proposal would mean that any SA emigrant would have to be out of SA for 3 years in order to be classified as a non-tax resident. This, effectively translated to the fact that those emigrants would have to wait 3 years outside SA before they could access their retirement funds.

That’s very different to the current scenario where SARB emigration allows the emigrant to withdraw all the capital in their retirement funds and move it overseas with them.

As usual, this sent the sales and marketing machines of some “financial emigration” businesses into overdrive trying to scare people into acting immediately. These scare tactics rely on the fact that most people don’t understand the legislation making processes.

In order for Minister Mboweni to get that idea into the law books there’s a fairly lengthy consultation process that has to evolve. This takes time (and of course none of us knew about Covid-19 back then) but it also means that many industry voices have to be heard – industry voices that are completely opposed to the 3 year rule.

So that leads us to now. One of Minister Mboweni’s stated goals is to make it easier for emigrants to return to South Africa. As it stands now, once you’ve been through the SARB emigration process it’s not that easy, so possible returnee’s are put off because of a, somewhat antiquated, process.

SA Treasury is now in the process of gathering input from industry representatives (aka everyone other than Treasury) so that they can take their half baked idea and turn it into a workable, practical solution!

As with all things, the opening gambit and the end result are very often very different. It does, however, leave those if us affected by it with a number of questions:

  • Will there be a 3 year rule on 1 March 2021? It’s possible, although I would be most surprised if the consultation process can be fully finalised and turned into legislation by then.

  • Will a 3 year rule make it harder for us to get our retirement savings out? Again, I would be surprised if it did. There’s too much at stake and that goes against that goal of wanting to get South African’s to return to South Africa. Locking down access to, previously available, funds is not going to win South Africa any friends amongst it’s emigrants so the goal will become a pipe-dream. From what I can see of Minister Mboweni, he’s quite smart and happy to be at odds with his peers in government. It would seem to be out of character for him to shoot himself in his South African foot by imposing this 3 year rule in it’s current form.

  • Will there be a transition period during the implementation of any 3 year rule? It’s really hard to say, so those who are “in process” at the time MIGHT get caught on the wrong side of the rule. Historically, it could go either way – there have been times when transition rules have been put in play and there have been times when it was a “hard implement” date.

For those of is on the consulting/advisory side of SA Taxes it’s impossible to make recommendations. Certainly, if:

  • you are in a position to do the SARB emigration thing, and

  • you want to get the capital out of your SA retirement funds, and

  • you are happy to pay the tax bill that goes with that, and

  • you are moderately risk averse,

THEN NOW would be a good time to get started. BUT it’s never worth rushing a process just because of a potential risk. There is NO substitute for careful planning and then working your plan carefully.

From our side, we would be happy to help you either talk through the plan, work the plan or get your cash out now if you can, so feel free to contact us and get your own ball rolling!

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