Emigrating? NT confirms 3 years wait to access preservation and RA lump sums

​​​​​National Treasury proposes to introduce a 3-year rule to replace the financial emigration trigger which allows individuals to withdraw all amounts in their preservation funds and retirement annuity funds before retirement. The proposed amendment in the draft Taxation Laws Amendment Bill 2020 provides that pre-retirement individuals will only be able to access their preservation funds and retirement annuity funds after ceasing to be tax resident in South Africa for three years, as opposed to completion of the financial emigration process. Please refer to our article which discusses some of the issues of the proposed amendment.

This proposed amendment resulted in intense discussions during the public participation process of the draft bill. National Treasury circulated a draft response document to the comments on 13 October 2020 as part of its presentation to the Standing Committee on Finance in Parliament.

What were National Treasury's responses to comments?

In the comments, National Treasury stated that it did not accept that the 3-year rule will (i) place a financial burden on individuals; (ii) impose additional administrative requirements for fund members, SARS and fund administrators; and (iii) result in any cash-flow delays to SARS. The 3-year rule is to ensure a sufficient lapse of time for all emigration processes of the individual to be completed.

This rule further seeks to ensure horizontal equity for tax residents who do not emigrate and then have to wait for retirement to access withdrawals from retirement annuity funds. National Treasury is concerned that there would be anomalous situations where an individual who has ceased to be tax resident for a year and returns to South Africa in the second year would have had access to those retirement funds. In contrast, individuals who have remained South African tax residents for all the years would have had no access to those funds.

Further, the 3-year rule applies to all individuals who cease to be tax residents, regardless of which residence test applied.


  • On this point, we note that an individual would cease to be tax resident in South Africa if they cease to be ordinarily resident. In other words, the individual has relocated and no longer intends to return to live permanently in South Africa.
  • Individuals who are not ordinarily resident should also ensure that they do not meet the physical presence test which would deem them to be tax resident in South Africa. The physical presence test deems an individual to be tax resident if they have (i) spent more than 91 days in total in the current year of assessment in South Africa; (ii) spent more than 91 days in total in each of the five preceding years of assessment, and (iii) spent more than 915 days in total in the last five preceding years of assessment, in South Africa. If possible, the individual should further ensure that they should not return to South Africa for the next 330 full days in order to cease to be tax resident from the date of departure.
  • The individual should further ensure that the tie-breaker residence rule in any relevant double tax agreement would not apply to deem them to be tax resident in South Africa. The rule would apply if the individual only has a permanent home in or the individual's personal and economic relations are to South Africa.

The 3-year rule comes into effect on 1 March 2021. Notably, all complete applications for financial emigration received by the South African Reserve Bank (SARB) on or before 28 February 2021 will be finalised through the existing process, provided they are approved by SARB and the approval occurs on or before 28 February 2022. This leniency granted by National Treasury goes some way towards ensuring that those who are in the middle of the process of emigrating will still be able to access their retirement funds.​

This leniency is most welcomed as many potential emigrants still face delays with obtaining appropriate permits and visas due to protracted travel bans in countries of emigration. International flights are still not readily available and those that are available are very expensive.

Who will be impacted by these amendments?

The 3-year rule will affect (i) all those who have investments in retirement annuity funds whether pre-retirement or not; and (ii) pre-retirement individuals who have used their one election to withdraw partially from their preservation funds before retirement.

Individuals who have annuitized their preservation funds after 55 are not affected and they remain unable to withdraw the remaining capital regardless whether they have completed the financial emigration process.

Individuals who terminate their employment and cease to be members of their employers' pension or provident funds will not be affected. They will be able to withdraw all amounts from these pension or provident funds on termination of employment (although this is not recommended) and such withdrawal benefits will be subject to employees' tax.

What should individuals in the process of emigrating do?

Individuals should submit their MP336(b) application forms and supporting documents (including tax clearance certificates) to their authorised dealers as soon as possible. Most importantly, they should regularly follow up with the authorised dealers after submission to ensure that there are no issues with their applications.

If the individuals have temporary visas or a history of travel to the country of emigration, the authorised dealers would usually accept their applications even if they are still in South Africa when the applications are submitted.

Individuals should also ensure that they file exit ITR12 tax returns for the year of assessment when they cease to be tax residents. This could be, for example, if they cease to be tax residents in the 2021 year of assessment. The 2021 tax return will be due by around middle of November 2021 for non-provisional taxpayers, or end of January 2022 for provisional taxpayers. Individuals should also ensure that they update their contact details and bank accounts on eFiling once they have relocated. They should also obtain proof of tax resident status in the country of emigration as soon as possible.