Managing finances while abroad: Expert advice for expats

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BOITUMELO NTSOKO: Living abroad can be an exciting adventure, but it also brings unique challenges, especially when it comes to managing your finances in a foreign country. In this episode, we’re joined by Rozanne Heystek-Potgieter, who is a certified financial planner at Brenthurst Wealth. She’ll be sharing her expert advice on how to navigate foreign taxes and currency exchange, as well as looking at other financial considerations expats need to factor in to make the most of their international journey. Welcome, Rozanne.

ROZANNE HEYSTEK-POTGIETER: Thank you, Tumi. Good morning.

BOITUMELO NTSOKO: Can you please provide us with an overview of the key financial considerations that expats should keep in mind when moving abroad?

ROZANNE HEYSTEK-POTGIETER: First, what needs to be addressed is that there needs to be a bit of a disclaimer attached to any discussions around emigration – the tax queries that come with that and tips on what to keep in mind – because there’s no one-size-fits-all approach here.

Emigration looks very different depending on how, what and where. If you’re moving to Europe versus the Middle East, Australia or the US or the UK, I think you need to think of what type of visa you are moving with. Do you already have a passport for a different country? Did you win a Green Card lottery, or do you have a new employer sponsoring your visa?

That said, the main financial considerations can be essentially grouped into two different spheres. So, [considering] the new location you’re heading to or where you possibly have already moved, you need to look at visa costs, visa application fees. There needs to be proof of a certain amount of funds available for a family. Certain qualifications need to be verified during that process. Language proficiency tests need to be done, and there needs to be proof of funds that you can actually move.

So there are a lot of different costs that come with the move.

The actual moving process of paying for a container to be filled with all your possessions can cost anywhere between R150 000 and R200 000, depending on whether you are sharing a container or not.

And then there could be some transitionary accommodation costs; once you’ve arrived in the different country, you might not have access to your furniture yet. You might not have a rental in place, or you might not have purchased a property yet. You might have to stay in some other form of accommodation, and that obviously comes with a cost implication.

And there are the flights. Let’s say, if you’re heading to Australia and you’re a family of four, the actual cost of those flights is a huge consideration.

Further on you need to look at the cost of living in the new country. How is your new salary going to be taxed? What’s the banking setup once you arrive? Will you still be depending on funds coming from South Africa? How will you be taxed in the new country, and what are the new marginal tax rates? Is there a healthcare levy that’s deducted, and how liveable will the salary really be?

Read: Need-to-know advice for HNWIs emigrating to the US

Moving back a bit to South Africa, from a South African perspective, you need to remember how you’re going to be taxed from the South African side. Once you make that move, you need to know about the cessation of taxation process, how that works and when it needs to be initiated. Also, look at your retirement savings that might remain in South Africa. How will those be managed? Do you have a financial advisor who will be looking after that and other assets that remain in South Africa, like immovables? Going back to your retirement savings, you might only be able to access that within three years of moving out of the country.

There are a lot of things to consider, so we could carry on for quite some while. You also need to think of banking structures and what needs to remain in place in South Africa once you’ve moved.

BOITUMELO NTSOKO: You touched a bit on tax. Could you just give us some of the common tax-related issues that expats face and how they can navigate those effectively?

ROZANNE HEYSTEK-POTGIETER: Essentially, whether you’re staying in South Africa or you’re moving, the advice is very similar. You want to get proper advice.

There needs to be some form not only of investment planning, but also tax planning and estate planning when you’re in South Africa or once you’ve moved – and also during any of the transitionary periods [when] you might be in a different country but may not have acquired assets there, and you haven’t established full domicile yet.

Essentially the most common issue that we see is whether you are being taxed properly [in terms of] the new local tax regulations, and how you are being taxed from a South African perspective because it’s not as simple as you getting on a plane and starting to work in a new country, and you no longer consider what’s left behind and what your tax status is in South Africa.

Read: Leaving SA for international pastures?

You need to know whether there are double-taxation agreements in the new country where you’re living and whether you have followed the proper procedure relating to Sars [South African Revenue Service], ensuring you’re not being taxed on your worldwide income once you’ve moved.

So, just to explain the process at the moment, it’s no longer referred to as ‘financial emigration’. That process changed in March 2021. Financial emigration has now essentially merged with other processes, and I will touch on that a little bit later.

Essentially you need to go through what’s now referred to as the ‘cessation of taxation’ process. It’s when you are breaking tax residency with South Africa.

You would essentially have to notify Sars of the change in your tax residency status, and the process is initiated by you having to submit a specific form; it’s called the ‘Registration amendments and verification form RAV01’ on eFiling, and this form essentially – coupled with quite some information relevant to exit dates, as well as certain documents – is then taken into consideration by Sars in determining your tax status if you’re no longer seen as a South African tax resident.

So the types of documents and information that you would have to provide to Sars in order to initiate this process includes what type of visa you actually acquired when you left the country, or in the new country that you’re going to. You need to be able to prove permanent residence in the new country. You need to give a letter or some type of certificate from the new tax authority in the country you’ve moved to, and details of any assets that remain in South Africa.

Or, if you have any business interests that still remain in South Africa, Sars wants details of your family members who remain, and certain information on whether you have any social interests that remain.

Do you have a gym contract that’s still active? Sars wants to know the location of your personal belongings. It’s quite a lot of information in terms of whether the intent is to establish domicile in a different country and no longer call South Africa home.

For an individual who is a resident, you’re a resident by the virtue of a physical presence test. So if you cease to be a resident, it would have to be outside South Africa for a continuous 330 full days. And then that person will then be deemed to have ceased to be a resident from the day you leave the country.

So getting an exit stamp when you leave and go through passport control is quite important. It is part of the proof of what you would submit to Sars to show the actual date that establishes the day you broke tax residency.

So you have to go through the actual application process. But if you’re in a country where there is a double-taxation agreement [DTA] in place, you will cease to be a tax resident for tax purposes in South Africa. It’s not an automatic thing; you still have to apply and submit that specific form with all the other information.

But if you’re in a country where there’s a DTA in place, and you have tax residency, it’s easier to prove that you’re no longer a tax resident.

What also needs to be kept in mind here is that there are consequences to breaking South African tax residency.

It can be quite a costly consequence because you are regarded as having disposed of all of your assets on the date that you broke tax residency, and you go through a capital gains tax [CGT] exercise in the sense that on all your worldwide assets there’ll be a CGT calculation done, excluding the immovable property that remains in South Africa. And there could be a bit of a tax bill, an exit tax that’s payable to Sars on that CGT calculation. That’s probably one of the reasons why most people avoid notifying Sars about tax residency because they don’t want to go through this process.

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So this is why Sars has recently changed the process when it comes to externalising funds; essentially, the financial emigration portion with the application to externalise capital has been merged, so that if you want to take money out of a country, either as a resident or a non-resident, the process is the same. You have to disclose base-cost values of assets, worldwide assets. And if you have actually left, if you’re no longer a tax resident, that CGT event might come into play at that point if you’re trying to externalise funds.

So it’s quite a minefield for people leaving the country, but the processes have to be complied with.

BOITUMELO NTSOKO: How does the picture change if you intend to come back to South Africa?

ROZANNE HEYSTEK-POTGIETER: Obviously, if you come back, you can reestablish tax residency by notifying Sars again that your tax residency can change again. You can reestablish it.

Obviously, if you’ve gone through the whole capital gains tax process, you kind of start over from zero. Those base costs will not essentially be adjusted but can change the picture … going forward.

But you can reestablish it. Sars won’t turn you away if you want to pay tax in South Africa again. [Chuckles]

BOITUMELO NTSOKO: Currency exchange can be a complicated aspect of financial planning for expats. What strategies or tools do you recommend for managing currency conversion and minimising the associated costs?

ROZANNE HEYSTEK-POTGIETER: At some point, most people exiting the country and moving to another country are going to have to exchange their rands for another form of hard currency. And, as we saw last month with the rand exchange rate with the US dollar going as high as R19.72, there’s no foolproof strategy here when it comes to exchanging your rands for hard currency.

You can either follow the process of blindly accepting trade rates and just pulling the trigger, as they say, or you can wait for a better rate, or you can process the trades in tranches, maybe a quarter of your capital at a time. But there’s no guarantee that you’re going to get the exchange rates you were hoping for.

The rand has simply been too volatile to ever give someone advice to say they should wait for a specific rate – because you could be wrong, you could be really wrong, or you could get lucky.

At Brenthurst, our in-house forex team never speculates on the rand, but we are at the moment experiencing that clients are happier the closer we move to the R18/dollar rate or even lower. It really depends on how soon an individual who is emigrating needs access to capital. They might not be able to wait around and see what the rand is doing before they go through with the trade. They might have to meet certain payment deadlines. There might be some financial obligations overseas that need to be settled right away, and then what the exchange rate is might be of no consequence.

BOITUMELO NTSOKO: Then how should expats approach investing or saving for retirement?

ROZANNE HEYSTEK-POTGIETER: I think it really depends on the financial position of the person who is exiting SA. It’s really about [whether] at the time they emigrate they could afford to emigrate with the capital they had available, or was it important or pertinent to save for a couple of years before they could actually leave.

Their financial circumstances might be very different once they actually leave the country. Especially if they’re going through tax residency, breaking tax residency, there is a CGT bill – all the costs that I’ve referred to earlier have to be paid.

Retirement might be on the bottom of the list of important things to save for. Also, once someone, let’s say, starts working in a different country, there might be other retirement pension rules relating to their salary. A larger percentage might have to be deducted, or they might have to have their own private pension fund – and that obviously needs to be set up once they arrive. They might need a local financial advisor to then put some products in place for them.

Read/listen: Expats: Keep retirement savings in SA or move them offshore?

Also what a lot of exiting South Africans don’t know is that if you have existing retirement annuities or a pension fund you have to wait a minimum of three years from the date that you leave the country, and then prove that you’ve left over that time period before you can access any lump sums from your RAs [retirement annuities]. Obviously, that is also then taxed according to the specific tax tables.

So you might not be able to depend on that amount of money for setup costs. And maybe there’s a delay in accessing the funds that might then be used for establishing a new pension fund strategy or a pension retirement fund strategy. So it really depends on how financially devastating the move was. You can quite easily start afresh, refocus on rebuilding savings and putting new products in place, and make up for the lost time it took to save towards the actual move.

BOITUMELO NTSOKO: Many expats still have financial ties to their home country, such as home loans or investments. How can they manage these effectively while living abroad?

ROZANNE HEYSTEK-POTGIETER: I think global globalisation happens all the time. I think it happens quite easily. Here at Brenthurst, we have successfully continued to manage funds, set up bank accounts, offshore accounts for clients who have applied for tax clearance, and having their capital emigrate before them before they leave South Africa, or for those who are in the planning stages of leaving South Africa. Obviously, it all will depend on the jurisdiction they are heading towards.

We look at options on investment strategies or banking facilities that will play nicely with their South African tax residency and their future tax residency.

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So knowing where the client is heading is quite important, and it takes a bit of pre-planning and navigating the new approval of international transfer process; that’s like combining essentially the application for a foreign allowance with financial emigration, and then making sure that we put products in place [where it] might not matter where the investor actually is and there’s a bit more of a seamless transition from being in South Africa and in a different country.

BOITUMELO NTSOKO: Health insurance is another crucial consideration for expats. What should be considered when choosing health insurance in the new country, and how can one ensure adequate coverage?

ROZANNE HEYSTEK-POTGIETER: I think once again medical aid is a bit of a broad topic. There’s no one-size-fits-all approach here. It’s going to depend on where people are emigrating to. If you look at countries like the UK, they have the NHS, and in Canada, there’s Medicare – and each of these is ‘free’ in air quotes.

These systems have certain restrictions when it comes to new permanent residents that arrive that side. If you take, for example, Canada, it will depend on which province you are actually moving to. There might be waiting periods of three to six months where you would require private health insurance to cover that waiting period before you can access any of the ‘free’ healthcare systems.

So it’s possible that while you’re still in SA, you can discuss that with your medical aid broker here to find out if your South African medical aid would be able to cover that timeframe between being on a private insurance [plan] in South Africa and going on to some form of national health service.

With most countries that don’t have a [national] healthcare system, you would have to do a little bit of research on how to procure medical insurance that will apply as soon as you arrive on that side.

BOITUMELO NTSOKO: Financial emergencies can occur anywhere. What are some of the practical steps expats can take to build an emergency fund?

ROZANNE HEYSTEK-POTGIETER: Well, I don’t think the strategies are much different from living while you’re in South Africa. There’s good old budgeting, living within your means and focusing your savings on different financial goals. Because emigrating is a costly exercise – even if you have an employer that’s sponsoring your visa application or your moving costs – there are going to be unknown expenditures.

These are some examples that people usually find out only once they arrive there.

Let’s say you’re putting down a deposit for a rental home. Some places will ask for up to three times the normal deposit simply because you can’t prove residency in the country.

They see you as a complete stranger to the country, and that might put a little financial strain on the normal setup, whereas here in South Africa, one month’s deposit is usually enough to secure a lease.

And then there could be other related costs relating to transportation. Let’s say you need to buy a new car, or you need to buy a travel card for a rail system, these are massive upfront costs.

Let’s say you’re purchasing a home and you need a home loan; in some countries, you will start with a very low credit score because you have absolutely no credit history with any of the banks there. Either you might not get a home loan approved at all, or you might not get any preferential rates simply because you have a low credit score.

I think savings and focusing on emergency funds will take a bit of a backseat if you’ve got all of these massive upfront costs.

So I think the savings really need to happen before you move, and you need to have a good financial advisor who can walk that path with you and even continue that relationship once you’ve moved overseas.

Just ensure that you’re meeting your savings goals and there are realistic plans put in place for even after you emigrate to make that journey a little bit smoother.

Let’s say you are moving with an employer, you’ve secured employment – with your new income, you can focus very much on saving the same way you did before. I guess at that point, the massive costs of emigrating have already been settled, and you can kind of start afresh.

BOITUMELO NTSOKO: Rozanne, are there any specific considerations that expats should keep in mind when creating a will or setting up a trust?

ROZANNE HEYSTEK-POTGIETER: I actually specialise in cross-border estate planning for our financial clients. Estate administration and estate planning when you bring in multiple jurisdictions is usually overlooked, and there can be simple mistakes made that could be catastrophic at the end of the day.

So as an expat, if you still have assets in South Africa after you emigrate, it’s quite important that you have a South African will with a South African executor, and you’ve ringfenced those specific SA-based assets in that will.

And then you [will] have created a new remaining global asset will in the new country where you are based, with an executor who is localised in that country or [according to] whichever rules apply in terms of that jurisdiction. You would need proper fiduciary services advice before you leave South Africa for that transition period between when you’re keeping South African assets and when you acquire new assets abroad. So your requirement for advice will change.

What I can add here in terms of overall estate planning is that an offshore trust can be a fantastic vehicle to keep assets if you don’t want [them] in South Africa and you don’t necessarily want [them] in the new jurisdiction.

Or if you haven’t necessarily settled on where you’ll be for the long term, you can kind of control the narrative in terms of estate planning if you use a structure like an offshore trust. You’re going to go through a bit of a CGT exercise; it’s a good time to maybe investigate the costs of donating certain assets to an offshore entity.

If you’re going to go through the process, it might be a good time to do it all at once. Brenthurst has its own Mauritian trust consulting firm called Brent Consulta. It provides advice to clients on these exact types of queries, obviously each individual’s financial needs, and the tax implications for the new jurisdiction – and all the circumstances will determine whether this is the right route to follow.

BOITUMELO NTSOKO: Just lastly, could you share any additional tips or advice for expats to help them make the most of their international journey?

ROZANNE HEYSTEK-POTGIETER: Well, I’ll keep that answer quite short and sweet. You need to do your own research, you need to do some planning, and you need to get good professional advice.

BOITUMELO NTSOKO: Thank you so much for joining us on this episode, Rozanne.

ROZANNE HEYSTEK-POTGIETER: You’re welcome. Thanks for having me.

BOITUMELO NTSOKO: That was Rozanne Heystek-Potgieter, who is a certified financial planner at Brenthurst Wealth.