At the end of April 2023 SARS implemented changes regarding the way you are allowed to take money out of the country. Exchange controls are not ideal for investors. It deters foreign investments in our country and limits our own investment choices. A country that is confident about its ability to attract investments will not have exchange control regulations, but such confidence is lacking in South Africa. As investors, we have been seeing a very welcome relaxation of these restrictions over the past decade or so; but does this move by SARS indicate a return to tightening control over the flow of funds out of the country?
Personal income tax is a big portion of the revenue generated by our government and the tax base in our country is very small. Only around 1,58 million people are paying the bulk of our income tax. It is estimated that a mere 25% of those who do pay income tax, contribute 80% of the tax collected. We have also seen this tax base declining ever further over recent years, with many wealthy families emigrating owing to the unfavourable conditions in SA. So, although SARS claims these recent adjustments are merely a change in process rather than new regulations, it does seem to be a reversal of its former loosening of foreign exchange controls and a reintroduction of tighter controls.
So what has changed?
Whilst South African tax-resident individuals can still transfer up to R1 million abroad under their annual Single Discretionary Allowance (SDA) before requiring foreign tax clearance approval from SARS, additional transfers of up to R10 million could be done under their Foreign Investment Allowance (FIA) in the same calendar year. Individuals who are no longer tax-resident in South Africa require clearance for any and all funds transferred abroad via an Emigration Allowance.
To manage this in the past, SARS made provision for two types of applications, namely an “Emigration Allowance” and a “Foreign Investment Allowance” (FIA) application regarding the R10 million. In an attempt to align and simplify processes, SARS has now merged these two allowances into the new “Approval for International Transfer” or “AIT”.
Furthermore, changes have also been made to the information requirements that must accompany an application for an AIT. The following information is now required:
- Statement of assets and liabilities for the previous three years must be split between local and foreign.
- Whether the applicant is a South African tax resident or not.
- Whether the applicant is a beneficiary of a local or foreign trust.
- Whether the applicant has an interest of 20% or more in any local or foreign entity, either directly or indirectly.
- Whether the applicant has any loans held in local or foreign trusts.
Taking all these changes into consideration, we can give SARS the benefit of the doubt and continue to invest up to R1 million abroad without their approval. We shall, however, have to monitor this closely and make sure that the SARS noose does not continue to tighten around the necks of South African citizens who wish to make direct international investments.
