New emigration tax laws may backfire on SARS, according to experts.
The South African Revenue Service’s (SARS) new administrative regulations for South Africans shifting money offshore may bite back. SARS surprised several industry participants in April 2023 by implementing the Approval International Transfer (AIT), which changes the administrative requirements for emigrating for tax purposes and investing money offshore.
SARS stated that the AIT’s statutory framework will be further aligned with that of the South African Reserve Bank (SARB), particularly in terms of emigration. However, Future Forex CEO Harry Scherzer has raised alarm about the new legislation.
“While the regulations may be well-intentioned and designed to help prevent South Africa from falling further afoul of traditional regulators, there’s also a good chance they could backfire,” Scherzer said. “Some have even gone so far as to argue that they could ultimately result in SARS collecting less tax revenue.”
What has changed?
Prior to the AIT, persons wishing to transfer funds overseas owing to emigration had to obtain an emigration-specific “Tax Compliance Status (TCS)” Pin from SARS. South Africans wanting to transport money offshore for investment purposes, on the other hand, would require a “Foreign Investment Allowance” (FIA) TCS Pin.
With the pin, South Africans may move up to R10 million out of the country without limitations each year, in addition to the R1 million that could be carried out without prior authorisation. Although the AIT permits South Africans to move the same amount offshore, the approval criteria are far stricter.
“On its own, that’s not necessarily a bad thing. As South Africa’s greylisting by the Financial Action Task Force (FATF) earlier this year shows, the country clearly needs better oversight on funds entering and leaving the country,” Scherzer said.
“And if better alignment between SARS and the Reserve Bank makes it easier to provide that oversight, then so much the better. Implemented properly, it could also have simplified the application process for anyone wanting to take money offshore.”
He did, however, point out that the extra information and documentation needed to obtain an AIT is significantly more complicated than it should be.
According to Tax Consulting South Africa, the AIT system requires the following documents to be submitted:
· Relevant documentation demonstrating the source of the capital to be invested.
· A statement of assets and obligations for the previous three tax years, including all investments, loan accounts, and distributions from domestic and international corporations, trusts, and so on.
· The applicable Power of Attorney must be supplied if the Tax Compliance Status application is submitted by someone other than the taxpayer.
According to Scherzer, the requirement for taxpayers to declare and value all local and overseas assets and liabilities might result in lengthy delays in obtaining an AIT – SARS would also need to validate this information, which will further cause delays.
“In the investment space, especially, time wasted is money lost. So, even if an investor wants to legitimately take their money offshore, they’ll struggle to do so. But that money, put to work, is a net positive for South Africa,” he said.
“Grown in more stable international markets, it can then be put to work in the economy. Having grown a healthy offshore nest egg, for example, someone might use it to build their retirement property or supplement their pension.”
He noted that the increased conditions may simply result in South Africans not shifting their money elsewhere, robbing the economy and SARS of further tax revenue. “None of those scenarios are good for the South African economy or the state’s ability to provide basic services to the country’s people,” he added.
CPI Payroll Support Team