Do you know how to withdraw your South African pension tax free?
If you reside overseas and have ceased your South African tax residency, you have the option of withdrawing your retirement funds in full. This is provided it’s after three years of being non-tax resident, even if you have not reached retirement age. This applies from the effective date of non-residency and not the date the application was submitted. Thus one can backdate their cease to be tax resident request to when they originally left South Africa.
In most cases the withdrawals are taxed in the same way and at the same tax rates depending on the retirement lump-sum withdrawal tables, however there are a few exceptions to this law.
If you have ceased your South African tax residency and are a tax resident in Australia, New Zealand, Portugal or the United Kingdom, you are able to withdraw your retirement funds tax free, from a South African perspective.
This is due to the provisions of the Double Tax Agreement between the respective country and South Africa, which only gives taxing rights to the country which you are tax resident in.
As South Africa does not have taxing rights to these retirement funds, it is imperative to follow the correct withdrawal procedures so that the South African Revenue Services (SARS) does not withhold any tax.
If SARS does withhold tax, the respective foreign country’s revenue authorities may not allow the tax withheld as a foreign tax credit, due to South Africa not having the right to tax this income. A lumpsum withdrawal request will need to be submitted to SARS along with a letter of support and a foreign tax residency certificate to request for the double tax agreement to be applied, so no tax is withheld on the withdrawal.
We recently assisted one of our clients who experienced this exact issue.
They did not get their retirement funds correctly withdrawn tax free in terms of the Double Tax Agreement and the UK tax authorities refused to allow the tax withheld by SARS as a foreign tax credit. This resulted in their retirement funds being taxed at 36% in South Africa, and then paying an additional 40% tax in the UK. A refund request and objection was then submitted to SARS to request a refund under the double tax agreement.
If you do not reside in one of the above-mentioned countries, both South Africa and the country in which you reside will have taxing rights to your retirement funds.
If this is the case, South Africa will have first taxing rights due to the retirement funds being located in South Africa. The country you reside in will have second taxing rights, and you will be entitled to claim the tax paid in South Africa as a foreign tax credit in the foreign country.
This can be a complicated process, but we are able to assist with ceasing South African tax residency, compiling the additional documents required for the lumpsum withdrawal request, South African Tax returns and getting the approval for international transfer (AIT) pin from SARS.
If you are looking to withdraw your pension from South Africa, book your FREE introductory call here.