Tax Consulting SA says the process of applying for tax clearance from the South African Revenue Service (SARS) has just become more difficult, which will impact anyone wanting to take money out of South Africa.
SARS has updated its systems related to tax compliance statuses (TCS), including how it is defined and processed within the revenue service’s systems.
The updated TCS system has made several changes, including redefining tax compliance within the system, improving the business process and usability of the system to encourage compliance, discontinuing the use of “tender” as an option for TCS requests, and aligning more closely with the South African Reserve Bank (SARB) legislatively.
‘Approval for International Transfer’ has now been changed by SARS through an update to its ‘Manage Your Compliance Status’ webpage and a new TCS application form.
“The purpose of these enhancements is, according to SARS, to facilitate the consolidation of Foreign Investment Allowance (FIA) and Emigration applications into a single application, ‘Approval International Transfer’,” said Tax Consulting SA.
How the change impacts taxpayers
The key change relates to the TCS PIN and how it is now processed.
In simple terms, a TCS PIN is a modern version of a Tax Compliance Certificate. It allows third parties, such as an individual, a company, or a government entity, to verify whether you or your business, is tax compliant.
According to Tax Consulting, there are several scenarios where you may require a TCS PIN, including tender applications and confirmation of your good standing with SARS.
However, the most common need for a TCS PIN is approval for transferring funds out of the country, formerly known as a Foreign Investment Allowance.
A taxpayer resident for tax purposes in South Africa can send up to R1 million out of South Africa per calendar year – called their Single Discretionary Allowance (SDA). For any spending beyond this, however, TCS PIN approval is needed to remit further amounts in that year.
Non-resident taxpayers do not have an SDA and require a clearance certificate when remitting any funds out of the country. This can now only be done under the new SARS approval system.
The group said that through this shift, it has become evident that SARS has hardened its stance on tax compliance.
A recent media statement from SARS said the new process is aimed at making it easier for taxpayers to comply with their obligations; however, it will be more difficult for taxpayers who are unwilling to comply.
The new system also requires far more detail from taxpayers, with more questions for taxpayers to answer and plenty more mandatory fields to fill out, especially for the declaration of local and foreign assets and liabilities section.
“The additional information requested on the Approval for International Transfer (AIT) Application allows SARS to ensure that all required tax payable has been accounted for and, if required, address any non-compliance that is detected through a verification and/or an audit,” Tax Consulting said.
To determine a taxpayer’s compliance, SARS will review the information provided in their application. If any discrepancies are found, it may lead to further investigation or a formal audit by SARS, said Tax Consulting SA.
The group noted that the new process requires far more detailed questions to be answered and can very well be considered a self-audit due to the type of qualitative and quantitative fields which require a compulsory answer and corroboration.
Firstly, you need to disclose your tax residency.
“This is prepopulated, so it will catch anyone who has permanently left and not previously emigrated formally with SARS or used one of the shortcut approaches.”
For non-residents, the effective date of non-residency is required, as well as proof of their non-residency (in the form of a SARS Non-Resident Confirmation Letter) and their current country of tax residency.
Secondly, SARS poses the question of seeking details of the nature of the amount to be remitted.
“The form operates on a compulsory field basis, so all the requested details must be completed. This can start with seemingly simple details, such as trust interests, shareholding, and loans to trusts internationally,” said Tax Consulting SA.
“Where it gets more complex is the source of each amount that makes up the total value of the amount to be remitted.”
Each item cascades into even more detail required, and especially where any structures are involved, there are supporting documents required, said Tax Consulting SA.
Ultimately SARS further requests the detail of all assets and liabilities which are held by the taxpayer, both local and foreign.
This makes up 38 categories in total, Tax Consulting SA.
These assets and liabilities must be included, at cost, with supporting documents required, for the previous three tax years.
In the past, it was mainly high net-worth individuals subject to a higher level of scrutiny by SARS rather than other taxpayers.
However, the “new enhancements” introduced now appear to level the playing field and ensure that everyone is held to the same high standard.