The government effectively tightened foreign exchange controls by stealth last week by introducing onerous new administrative burdens for those wishing to take their money offshore.
The SA Revenue Service (Sars) said in its online site on April 24 that the move was aimed at “strengthening legislative alignment with the SARB (SA Reserve Bank) exchange control changes as it pertains to Emigration, with the introduction of a new dynamic application called ‘Approval International Transfer (AIT)’, to replace the existing ‘Emigration’ and ‘Foreign Investment Allowance (FIA)’ application types.”
Tax consultant and head of cross-border individual tax at Tax Consulting SA, Thomas Lobban, said on their website: “Perhaps now spurred on by the recent, and unceremonious greylisting of South Africa by the Financial Action Task Force in February this year, this silent-but-violent change to the TCS Pin request requirements has nevertheless come as a bolt out of the blue. Even South African authorised dealers (i.e., the banks) seem to have been caught unawares by this sudden change.”
Previously, a person, whether a “resident” or “non-resident” of South Africa, needed to obtain a Tax Compliance Status (TCS) Pin from Sars – Sars made provision for an “Emigration” TCS Pin and for a “Foreign Investment Allowance” (FIA) TCS Pin.
Lobban said now these were effectively the same, dubbed an Approval for International Transfer, or AIT.
Magnus Heysteck, an investment strategist at Brenthurst Wealth and financial columnist, wrote in Biznews.com: “In one fell swoop...Treasury now deems financial emigration and the application for the annual R10 million allowance to be the same thing, calling it an International Approved Transfer (IAT) with the same, complicated and intrusive process to be followed before permission will be given.
“Some of these requirements are now so extreme and impractical that many taxpayers will walk away and use other ways (legal and illegal) to build up some offshore capital,” he said.
Lobban said the AIT Pin was now the go-to requirement when it came to the approval of funds out of South Africa, i.e., more than R1m for a tax resident, and every cent for a person who has ceased to be a tax resident, per year.
“This one document replaces the different approvals that were previously needed, simplifying things from this perspective, but the extent of information and documentation required by Sars is far, far more involved and extensive,” he said.
For example, previously, a taxpayer who applied for either an Emigration or FIA Pin from Sars was required to disclose their local assets and liabilities for the previous three years. Now, taxpayers were required to disclose both their local as well as their foreign assets and liabilities to Sars.
Every asset listed in the Local and Foreign Assets & Liabilities forms had to be allocated a value, and at cost. This was subject to further verification by Sars, in each case, and capturing the relevant information incorrectly may well lead to delay, if not complications, in the application for the AIT Pin or further down the line with Sars.
Another new requirement was a request to the taxpayer for the sources where the value arose from. This, too, would subject to Sars verification and needed to be carefully selected.
Lobban said the National Treasury had been promising to strengthen the tax treatment of taxpayers with foreign interests, inclusive of a “more stringent verification process” and the triggering of a “risk management test” that includes the “certification of tax status and the source of funds”, since the 2020 Budget Speech.
Last year, in an event held by the South African Institute of Taxation, in collaboration with Standard Bank and Tax Consulting SA, Natasha Singh from Sars’ High Wealth Individuals Unit said that Sars would seek to “enhance voluntary compliance”, and at the same time detect taxpayers “who do not comply” and “make non-compliance hard and costly” for them.
“These comments, read with Sars’ Strategic Plan for the 2021-2025 tax years, indicate that this forms part of its larger project to develop and implement an enhanced methodology to detect and select non-compliance,” said Lobban.