Tax compliance changes:
what you need to know

WHAT HAS CHANGED?

On 24 April 2023, in the wake of South Africa’s greylisting by the Financial Action Task Force in February, SARS announced changes to the TCS process – with immediate effect. According to SARS, the system is being enhanced to align with international standards. The changes were further necessitated by the elimination in 2020 of the concept of emigration. The new process consolidates the formerly separate foreign investment allowance and emigration tax clearance applications into a single new Approval International Transfer (AIT) application.

In announcing the changes, SARS said the additional information now requested on the AIT application allows it to ensure tax compliance and, if necessary, to address any non-compliance detected through verification and/or an audit.

The revised AIT process applies to South African residents transferring money out of South Africa as well as those who have become non-resident for tax purposes.

NON-RESIDENT APPLICATIONS

For such non-tax-residents, the following information and documents are required:

• The date on which you ceased South African residency – SARS will require a Notice of Non-Resident Tax Status (a ‘non-resident confirmation letter’)
• The name of the country in which you are now a tax resident
• Whether you are a beneficiary of a local or foreign trust – if yes, you need to provide the trust registration and tax numbers
• Whether you have direct or indirect shareholding in any legal entity (local or foreign) of more than 10% or 20% (in some instances) – if yes, you need to provide the entity details
• Whether you have existing loans to a trust (local or foreign) – if yes, the trust details must be provided
• Relevant supporting documents showing the sources* of the capital together with base costs where applicable
• The total amount requested, which cannot be more than the value of your available funds
• The name of the country to which your funds are being transferred
• A statement of your assets and liabilities, both local and foreign, for three years.

*Fund sources usually include cash or savings, distributions from a trust, donations, dividends from a company, inheritance, loans, proceeds from the sale of property, crypto assets, shares and other securities, and transfer of listed securities.

Note: With regard to the withdrawal of certain retirement funds before the age of 55, such as lump-sum benefits from pension preservation, provident preservation and retirement annuity funds, the payment of such lump-sum benefits will be allowed only if the individual has remained a non-tax-resident for at least three consecutive years.

SA TAX RESIDENT APPLICATIONS

For South African tax residents, the following information and documents are required:

• The total amount requested, which cannot be more than the value of your available funds
• The source of the funds to be externalised, as well as proof of the source of funds together with the base costs, if applicable
• The name of the country to which funds are being transferred
• Whether you are a beneficiary of a local or foreign trust – if yes, you need to provide the trust registration and tax numbers
• Whether you have direct or indirect shareholding in any legal entity (local or foreign) of more than 10% or 20% (in some instances) – if yes, you need to provide the entity details
• Whether you have existing loans to a trust (local or foreign) – if yes, the trust details must be provided
• A statement of your assets and liabilities, both local and foreign, for three years.

SARS has reserved the right to request further information and documents for applications. It will use the information provided in the application to determine if taxpayers have been compliant in their dealings with SARS. If there are any discrepancies, this will result in further verification or even a formal tax audit.

The turnaround time for applications is 21 working days. However, due to the additional information and documents that are now being requested, we expect this timeline to be exceeded and applicants should bear this in mind.

It should be clear that taxpayers seeking to externalise funds will now have to exercise a much higher degree of diligence to ensure that their affairs are in order, and it is imperative to obtain professional advice in this matter.

At Sanlam Private Wealth, we provide enhanced tax compliance services to high net worth and ultra-high net worth clients. If you’d like any further information, please contact Kajal Chowthee at kajalc@privatewealth.sanlam.co.za.