Fidelis Vox | We discern what really matters to you

Following the end of “emigration” as an exchange control concept in 2020, several changes have been effected by SARS and specifically its Tax Clearance Status (“TCS”) application process. The previous MP336 application which related to “emigration” was notorious for its red tape.

It is trite that each taxpayer 18 years and older has a single discretionary allowance (“SDA”) of R1 million and a foreign investment allowance (“FIA”) of R10 million per calendar year. The SDA may be used for any legal purpose abroad, including for travel and investment purposes. The FIA may be used when a taxpayer is in good standing with SARS to invest outside the Common Monetary Area (“CMA”, i.e. eSwatini, Lesotho, Namibia and South Africa).

To utilise your FIA, the Authorised Dealer requires a TCS from SARS. An Authorised Dealer is a bank which has been registered in terms of our banking and financial sector laws and is authorised to deal in foreign exchange. Up to 24 April 2023 and since the end of “emigration” as stated above, taxpayers who wanted to externalise funds from the CMA could either apply for a TCS under the “Foreign Investment Allowance” or “Emigration” category.

What has changed?

On 24 April 2023 the TCS process changed with the aim of making it easier for taxpayers to comply and also for SARS to be more effective in processing TCS requests should taxpayers be compliant. The “Emigration” and “Foreign Investment Allowance” categories were merged into one category, i.e. Approval of International Transfer or “AIT”.

Although the TCS process has been streamlined into this one category, the disclosure requirements are substantial. It entails submitting e.g. source of funds of your worldwide assets, statement of assets and liabilities for the previous three years, including investments, loan accounts and distributions received from domestic and foreign companies and / or trusts, and where a taxpayer is no longer tax resident, relevant proof of cessation of tax residency with a detailed Capital Gains Tax Calculation schedule pursuant to Section 9H(2) of the Income Tax Act, i.e. “exit tax” when ceasing tax residency.

If you have been a compliant taxpayer who disclosed all relevant information to SARS and have kept meticulous records, not much should have changed for you except for the time it may take to upload the relevant supporting documents when applying for a TCS under the AIT category.

However, if you are for instance residing abroad and you are unsure of your tax residency status in South Africa, this may be where you should start to obtain certainty to ensure compliance before navigating the TCS process. This is due to the fact that your South African tax residency status with SARS should first be up to date to be compliant when you want to externalise funds abroad. Information relating to your tax residency status is typically requested when applying for a TCS.

The premise for this new rigorous process, per SARS, is that if you apply for more than the R1 million SDA, you are deemed to be a sophisticated taxpayer who are reasonable expected to have records of, inter alia, the base cost of assets owned.

Why is it important?

Although the process for a TCS processs has been streamlined, it has an increased burden of proof on the taxpayer, tax resident or not, to proactively confirm and substantiate tax compliance in South Africa.

In some instances it may require you to reactive your SARS / eFiling profile to update your residency status first to ensure compliance with or without a potential voluntary disclosure application to SARS.

The latter would, for instance, be applicable if you have in fact ceased tax residency in South Africa and you have not declared and paid exit tax in terms of Section 9H(2) of the Income Tax Act. These steps are all very important prior to applying for a TCS. Should you apply for a TCS without considering your compliance position and potential remedial actions first, you may end up being audited which will not provide you with the protection forming part of a voluntary disclosure application adhering to all the requirements.

From a practical perspective, these changes could impact not only externalising your own funds offshore, but also should you reside abroad and stand to inherit from a South African estate or receive a distribution from a domestic trust.

It is clear that different permutations would be applicable from one individual to the next, and therefore formal, bespoke advice is required to ensure that you are not caught off guard.

Should you have any questions relating to the above, please contact Suzanne Smit (suzanne@fidelisvox.co.za).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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