Expats, taxes, and Mauritius
After years of work and raising children, it is no surprise that many retirees opt to travel, with many going on ‘grown-up gap years’ and international cruises. Some, especially those whose children have migrated, choose to follow suit, sometimes before retirement age, and there are some tax benefits depending on when they decide to leave. A change in South African tax legislation in 2008 presented a unique opportunity to South African expats and their retirement funds where they can freely transfer their retirement savings offshore before the recognised retirement age of 55. A compounding depreciating South African rand is just one of the reasons many choose to migrate and access their retirement vehicles early and invest abroad. There are also benefits for those who’ve migrated during their working years and choose to come back to South Africa to retire. According to a ruling made by the South African Revenue Service (SARS), pensions accumulated while working outside the country will not be taxed.
Mauritius Phillip Kassel, financial planner for Liberty Life, says that those officially migrating to Mauritius, regardless of their age, can commute the full amount of their retirement fund to cash, provided their tax affairs are in order. “SARS regards this as a withdrawal, and you will be taxed according to the Withdrawal Tax tables, where only R25 000 is tax-free, and the balance is taxed in a tiered fashion,” says Kassel, who warns that if the amount available is fairly substantial, this will result in a large amount of tax being deducted. Kassel says that retirees who have officially reached the age of 55 can elect to ‘commute’ up to the full amount of the fund, but cannot encash more than one-third. “If you have never encashed funds from a retirement investment, pension or provident fund in the form of a retirement, then the first R500 000 of the one-third of the fund is tax-free, and the balance of the fund is taxed per the SARS retirement tax tables,” he says, reporting that this method of taxing is certainly more beneficial than the withdrawal tax table. He adds that the balance of the amount not accessed in cash, can then be converted to an income, and such income is channelled to the annuitant in the country of the retiree’s new domicile through a blocked Reserve Bank account, which the annuitant’s bank must help facilitate. “The income thus received is taxed either in South Africa or in the new country of residence, dependent on the agreements in place between the two countries, but no ‘double taxation’ will take place.” Kassel points out that annuitants of retirement age (55 or older) will access far greater tax benefits if they decide to retire in Mauritius than migrants younger than 55.