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On 24 April 2023, the South African Revenue Service (SARS) implemented new changes to the tax clearance process for individual cross-border capital flows, specifically relating to foreign investment and emigration.
Essentially these are system enhancements, the purpose being to align the various tax clearance processes. For further context, here are relevant key announcements over the past 3 years.
In February 2020, the Minister of Finance announced a move from exchange controls to capital flow management measures to regulate cross-border capital flows. He also announced that emigration would be phased out over the following 12 months. The stated objective of this modernisation process was to treat all South African individuals the same, regardless of where they live. Emigration was ultimately phased out in March 2021.
SARS has now implemented further system changes to align the tax clearance processes applicable to the foreign investment and emigration allowances. Part of these changes includes adjusting the definition of what it means to be tax compliant and will be focusing on continuous tax compliance enhancements.
Practically, this means that the Approval of International Transfer (AIT) replaces the existing Emigration and Foreign Investment Allowance (FIA) application types.
An important change to the process is the additional information that SARS now requires as part of the AIT, which includes confirmation of the following:
Statements of assets and liabilities must be split between foreign and local
Tax status (resident or non-resident)
Are you a beneficiary of a trust (foreign or local)
Do you have a shareholding (directly or indirectly) in any legal entity of 20% or more (foreign or local)
Have you made a loan/s to a trust (local or foreign)
Previously, the FIA (R10m) required the completion of a SARS FIA001 Form. This would generate a TCS (Tax Compliance Status) PIN for foreign investment. Emigrants followed a similar process, but would be issued a TCS PIN for emigration. This has now been consolidated into a single clearance process, namely the AIT.
The above changes are applicable to the tax clearance process, and it is important to note that no changes have been made on the Exchange Control side. The allowances applicable to South African resident individuals, as well as those who have ceased to be residents for tax purposes (emigrants) remain unchanged, and can be summarised as follows:
The R1m Single Discretionary Allowance is available annually to all South African resident individuals, 18 years and older. It is only available to emigrants in the calendar year who they leave South Africa. Any further capital transfers for residents or emigrants require tax clearance in terms of the AIT process. SARB approval is also required for applications in excess of R10m.
In closing, the new process applies to new applications, and does not have any impact on tax clearances that have already been issued. We will continue to assist clients with the tax clearance process for foreign investment, but there may be some delays during this transitional period. Warren Berriman
Managing Director - Alexander Beard RSA (Pty) Ltd.