SARS attempts to slow the bleed? New SARS application process to invest or emigrate overseas

31 May 2023

The impending and eventual reality of the Financial Action Task Force (“FATF”) grey listing South Africa came with little surprise on 24 February 2023 to the majority of professional bodies and the country as a whole. The FATF’s 2021-2022 Annual Report, which outlined 67 recommendations that South Africa needed to address in order to avert becoming grey listed, was supplemented in October 2021 (“Report”), and specified 12 deficiencies in the country’s anti-money laundering and counter terrorist financing framework. South Africa ultimately failed to address these deficiencies, landing South Africa where it is among the FATF’s grey list.

Although South Africa did make meaningful amendments to new and existing legislation in order to address the shortcomings of the Report, these attempts were not sufficient. As a post-grey list response to this, South Africa (and its various statutory and regulatory organs) are cracking down on various aspects of the financial and legal systems in what can be surmised as an attempt to whitelist the country. This is aptly evident regarding the latest aggressive and cunning compliance amendments made by the South African Revenue Services (“SARS”) and the South African Reserve Bank (“SARB”) to the expatriation (export) of funds overseas by an individual, which took effect from 21 April 2023.

The amendments have introduced, amongst other things, a new “enhanced Tax Compliance Status application form” which necessitates that natural persons must make an “Approval International Transfer” (“AIT”) application for those individuals who wish to expatriate funds overseas.

The previous position allowed for any individual to transfer up to a total of R10 million per calendar year abroad through an authorised dealer by way of that individual’s Foreign Investment Allowance (“FIA”) with little fuss and with a few tax compliance obligations – such as obtaining a Tax Compliance Status (“TCS”) Pin. Instead, the amendments introduce the new mandatory application (“AIT application”) that must be made by an individual in order for that person to export capital funds abroad in excess of their annual discretionary allowance of R1 million per year.

Furthermore, SARS previously allowed for two types of TCS Pins to be processed for expatriation applications depending on the situation, namely, a FIA TCS Pin or an emigration TCS Pin, depending on whether the individual desired to utilise their annual FIA or whether they were making an emigration application, respectively. Both of these applications have now been consolidated into one application, i.e., the AIT application.

Essentially, the previously prevailing systems for FIA and emigration TCS Pins are no longer applicable, and all individuals must utilise the AIT application form and process for both of these purposes. Furthermore, the AIT application has also introduced a significant increase in disclosures and supporting documentation required by the individual in order to have their AIT application approved, which is largely dependent on the purpose of the foreign investment. For example, all AIT applications must submit all material that demonstrates the source of the capital to be invested (whether local or foreign) and a statement of assets and liabilities for the previous three years – a significantly more onerous position which requires honest and accurate disclosures of the individual’s source and nature of funds to SARS (and consequently the SARB). Once an AIT application is approved, SARS will issue the individual with an AIT TCS Pin, which enables authorised third parties to verify your tax compliance.

The single discretionary allowance of R1 million per calendar year for each individual is still in force, however, should any individual wish to expatriate larger quantities than this threshold, they will need to follow the AIT application process, along with all the additional disclosures accessory thereto.

For more information on the AIT application process, see this link.

There is an abundance of speculation as to reasons for the mass exodus from South Africa of high profile individuals overseas over the last few years, and there is no doubt that these sudden amendments are a consequence of this fact. The question now posed is whether South Africa’s immediate goals and response to aggressively regulate the disclosures and movement of high-wealth individuals (which this amendment largely impacts) is the right step for the country as a whole, or whether South Africa is trying to gauze the persistent slow bleeding of capital funds in its current socio-political economy.

Our team of specialised lawyers are available to advise you on any exchange control laws and structuring of your corporate and personal affairs.

Article sourced from Eversheds Sutherland.

See also:

• Registering beneficial ownership following South Africa’s grey listing
• Anti-Money Laundering Amendment Act signed
• A global minimum tax? What could it mean?
• Recent important FICA amendments you should be aware of

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)