Emigration occurs when you leave your country, and it is a complicated process.
Apart from death and a marriage it is considered as one of the most dramatic and involved things that you can experience.
It can easily turn into a nightmare and the new country can shut its doors if the immigration process (to reside in a new country) is not handled properly.
Figures from New Zealand’s immigration authority indicate that almost 50% of applications for permanent residency rights are unsuccessful when submitted by the applicants themselves. In contrast to this, applications submitted via registered emigration agents have a 97% success rate, says Ryno Viljoen, managing director of cashkows.com, which specialises in financial migration.
“It is important that the immigration agent is licensed with the destination country’s official registration authority. This prevent mistakes and fraud and will ensure that the immigration process is followed properly,” says Sharon Yerman, director of New Zealand Migration Services.
Most of the immigrants with a negative immigration experience are those who approached it incorrectly and then complain when things go wrong, and the immigration was unsuccessful.
Emigration and your bank account
The application to change your status to “emigrant”, is handled by a local bank registered as authorised agents with the South African Reserve Bank (SARB), who prepare your submission to SARB. SARB then records the change in residency status, provided that the right to live in the new country can be confirmed.
Once the emigrant status is approved, the emigrant’s local bank account is converted into a blocked account for exchange purposes. “Unfortunately the word ‘blocked’has a negative connotation and promotes the perception that a blocked account means that money cannot be transferred overseas,” says Viljoen.
The account can according to him, be used for normal day-to-day transactions. There are some limitations, such as the fact that online access is not available, and that local transactions have to be approved by the bank.
“However, the advantage is that the money in the account can be transferred to foreign countries without any limitations. As an emigrant, you are also allowed to transfer unlimited amounts of money into the blocked account.”
Bank transfers
Retirement annuities, yields from life insurance policies, inheritances (provided that the beneficiary was registered as an emigrant before the death) and passive income such as dividends, salaries, directors’ fees and trust income can be transferred from the blocked account.
Once the funds that the emigrant wants to transfer abroad are in the blocked account, the local bank handles the transaction.
According to Gerhard Niemann, managing director of Quinn Treasury, it is important that the prospective emigrant transfers the R4 million foreign investment grant to the chosen country before a blocked account is created. The emigrant can obtain the best rate by comparing foreign exchange quotes from independent forex traders.
Once the blocked account is opened, all the money and investments in the account are consolidated and the relevant local bank is required to do the transfer. This means that better rates can’t be negotiated with other banks. Viljoen warns that it is important for the emigrant to request other exchange rates as well and not to just simply accept the first bank’s rate.
Financial advisor
Most immigration agents are not financial advisors and are therefore in terms of the Financial Advisory and Intermediate Services Act (Fais) not allowed to advise the emigrant on the financial matters relating to the financial emigration process.
This means that the immigration agent refers the prospective emigrant to local financial advisors, who might not understand the South African emigration process, or not be able to provide the proper advice on the matter.
The prospective emigrant should insist on speaking with a financial advisor specialising in emigration who can draw up a financial emigration plan and long-term overseas strategy. The advisor will assist with the compilation of a financial migration plan in collaboration with the emigrant. This must be considered 12 months prior to the emigrant leaving South Africa. The emigration plan will make provision for, amongst other things, the opening of foreign bank accounts and the liquidation of assets, followed by the formal emigration process if deemed appropriate.
Annuities
Emigration often also involves the restructuring of local assets via a trust or company to tax efficient countries such as Guernsey, Jersey or the Isle of Man. This requires expert legal and tax advice.
Amendments to the Income Tax Act in 2008 now also enables emigrants to cash in retirement annuities (taken out to save for retirement) before the age of 55 and transfer the funds to a foreign country via the blocked account. Viljoen says that many South Africans abroad are unaware of this, even though it can assist with the purchase of a car or a deposit to finance a house.
In terms of South Africa legislation, emigrants are not allowed to defunct their living annuities and transfer it overseas. A living annuity is created when a retirement annuity, pension or other retirement funds is converted to a life annuity or income plan at the chosen retirement age (earliest is 55 years).
The emigrant can however withdraw a third of the retirement annuity or pension when the retirement age is reached, and then transfer it overseas, while the balance of the two thirds must be invested in a South African living annuity.
The emigrant has the choice of withdrawing an annual income of between 2,5% and 17,5% from a living annuity and can transfer the income overseas via the blocked account.
“However, the weakening rand means that a South African emigrant’s monthly salary in Australia, for example, has decreased by 23% over the past two years. A huge imbalance occurs when a South African emigrant in Australia has investments in South African stocks, shares and cash,” says Richard Carter, director of Allan Gray Life.
Carter is of the opinion that the risk can be minimised by investing as much of the money overseas as possible.
Viljoen says that prospective emigrants should not convert their retirement annuities in living annuities, because the entire retirement annuity can be converted into cash and then taken out of the country.
Remember the following:
- Inheritances
The inheritances of permanent residents in a new country are therefore only payable in South Africa to the beneficiaries’ South African bank accounts.
- Passive income
Emigrants can transfer income - such as dividends, interest, rent and even income from discretionary trusts - overseas without any limitations. Permanent residents are not permitted to do this.
- Move large amounts
Emigration is often used by wealthy individuals to take large, legal amounts out of the country. This enables them to diversify their assets, which they can use to finance their lifestyle abroad. An emigrant can also move capital from a discretionary trust abroad. Permanent residents abroad, who have not formally emigrated, are limited to their annual foreign grant, asset exchange transactions and the foreign property grant.
- Bank accounts and credit cards
Permanent residents with South African citizenship can only open foreign bank and credit card accounts with the permission of the SARB, whereas there are no such limitations on emigrants.
It is illegal for permanent residents to use South African credit cards and persons committing such an offence are at risk of being fined up to 100%. Emigrants can use their South African debit cards to access their unblocked South African accounts.
- Pension plans
- Back to SA
- Time and costs
Viljoen says that a typical emigration of a family currently costs approximately R150 000.
You must weigh this cost up against your income and lifestyle costs in the other country to make sure that it makes sense financially.
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