The South African Reserve Bank (SARB) has implemented changes to the exchange control system, effective from 1 March 2021, with a new focus on tax residency rather than financial emigration. These changes impact the Tax Compliance Status (TCS) requests for Foreign Investment Allowances (FIA) and financial emigration as well as the withdrawal of retirement funds. With these changes, SARB and their Authorised Dealers will place an increased emphasis on the tax residency of a taxpayer which in future will drive the ability of a person to remit funds and transfer assets offshore.

The changes are as follows:

  • The SARB application for financial emigration via the MP336(b) is no longer applicable from 1 March 2021.
  • Applicants for financial emigration who submitted their MP336(b) to an Authorised Dealer on or before 28 February 2021 can still follow the old process and apply for a TCS in respect of “Emigration” up until 28 February 2022.
  • Blocking an emigrant's remaining assets in a “blocked funds account” will no longer be required and all transfers from these will be handled as normal fund transfers in line with any other FIA transfer.
  • With effect from 1 March 2021 any induvial that breaks SA tax residence must undergo a new process where SARS will confirm that the taxpayer has ceased to be a resident for tax purposes. The taxpayer must apply via the SARS TCR01 “Emigration“ Application, where they will have to provide SARS with supporting documents to prove their non-resident status.
  • Previously a financial emigrant was entitled to withdraw from a retirement fund and have the proceeds transferred offshore. Post 1 March 2021, taxpayers who emigrate will only be able to access their retirement benefits if they can prove, to the fund, that they have been non-resident for tax purposes for an uninterrupted period of three years. An applicable Tax Directive must also be issued to the fund by SARS. The emigrant will be required to provide the applicable TCS to the Authorised Dealer, as well as documentation from the fund that indicates or confirms the final amount paid or to be paid before any transfer abroad will be processed.
  • If an emigrant wishes to remit funds offshore after 1 March 2021 the process might differ depending on the amounts involved.
  • Up to R1 million per calendar year is available via the discretionary allowance for which no TCS is required.
  • In addition up to R10 million per calendar year per emigrant who ceases to be a resident for tax purposes and is 18 years and older, provided that the individual is tax compliant and submits the applicable TCS PIN for verification.
  • Amounts in excess of R10 million are subject, initially to a more stringent verification process by SARS; as well as a subsequent approval process from the Financial Surveillance Department of SARB. Such transfers will trigger a risk management test that will, inter alia, include verification of the tax status and the source of funds, as well as risk assess the emigrant in terms of the anti-money laundering and countering terror financing requirements. It is imperative that the application to the Financial Surveillance Department is accompanied by a TCS PIN letter that will contain the tax number and TCS PIN to verify the taxpayer’s tax compliance.
  • With effect from 1 March 2021, emigrants and residents are treated the same when remitting funds abroad.

The thresholds and SARS process for residents applying for a TCS in respect of FIA will not change.  The application form must be completed and submitted via eFiling together with relevant supporting documents as requested by SARS. Examples of supporting documents that will be required by SARS are as follows (but not limited to these):

  • Relevant documentation demonstrating the source of the capital to be invested offshore.
  • Statement of Assets and Liabilities for the previous three tax years
  • Applicable Power of Attorney if the TCS application is being submitted by someone other than the taxpayer.

For a detailed list of supporting documents regarding the source of capital to be invested can be found on SARS’ website on www.sars.gov.za

Ntsika Maki

Individual Tax Compliance Officer, Cape Town

This article was originally published in SAICA's Integritax

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