SARS cracking down on moving money abroad – what you need to know

 ·2 Jul 2023

South Africa’s greylisting has had unforeseen knock-on effects on processes regarding the implementation of tax law.

Tax experts at Tax Consulting SA said that as a result of concerns about the country’s anti-money laundering efforts – the greylisting increased the scrutiny of cross-border transactions, specifically those where money leaves South Africa.

South Africa was added to the Financial Action Task Force’s (FATF) global grey list on 24 February 2023, however, it was widely expected to occur. The FATF found loopholes in regulations that sought to eliminate money laundering and terrorist financing.

To try and escape the greylisting that has made doing business with international businesses more strenuous, SARS played its part and implemented the “Approval International Transfer” or “AIT” Tax Compliance Status (TCS) process.

According to Tax Consulting SA, this process requires that relevant individuals obtain approval from SARS before remitting funds out of South Africa, and failure to obtain this approval can result in penalties, fines, and even imprisonment.

“By introducing the new approval process, SARS is demonstrating a commitment to preventing financial crime. The AIT process potentially reduces the risk of the more detrimental blacklisting, which follows from failure to cooperate,” said the tax consulting company.

AIT process

The new processes’ impact extends beyond individuals and may even affect businesses.

Individuals and businesses involved in cross-border transactions, including property transactions with foreign investors, will be held to stringent exchange control requirements for clearance.”

“These requirements will include the accurate completion of the AIT process, where required, to legitimise the transfer of funds in each case,” said Tax Consulting SA.

Under the new process, an AIT requires the submission of the following documents:

  • Relevant material showing the source of the capital to be invested.
  • A statement of assets and liabilities for the preceding three tax years, which includes the disclosure of all investments, loan accounts, and distributions from local and foreign companies, trusts, etc.
  • If the Tax Compliance Status application is submitted by someone other than the taxpayer, the relevant Power of Attorney must be submitted.

The full guide can be accessed here:

Residents vs Non-Residents

Tax Consulting SA said that those who seek to transfer funds abroad must confirm their residency status.

The process applies to all cross-border capital transfers for tax non-residents, regardless of the transaction size.

This means that even small transactions, like sending money to family members or transferring retirement fund interests abroad, would need approval from SARS before the funds can be sent out of the country.

To obtain SARS AIT approval, the sender must provide detailed information about the transaction, including the purpose of the remittance, the identity of the recipient, and the source of the funds to be transferred.

SARS will then review this information and may request additional documentation or information before granting approval.

“A noteworthy point to remember is that individuals who have already gone through the financial emigration process with SARB and their authorised dealer (their bank), using the MP336(b) form, will need to provide a Non-Resident Confirmation Letter from SARS,” said Tax Consulting SA.

“It is crucial not to erroneously apply as a tax resident if a prior declaration of non-residency has been made to SARS,” Tax Consulting SA said.

Impact on Various Sectors

The SARS AIT impact on businesses is not just limited to the banking sector. Various business sectors, including property, financial services, banking and legal services, are impacted by AIT approval rules.

Especially those that rely on trade with foreign entities and associated cross-border transactions. Most evidently, in the property sector, transactions involving foreign investors may require approval from SARS before money can be remitted out of South Africa.

Banks in South Africa are now mandated by the South African Reserve Bank (SARB) to enforce Balance of Payments (BoP) requirements for cross-border transactions – as another level of protection against financial crimes.

SARS’ alignment with international standards has prompted the SARB, in practice, to become far more stringent in implementing the BoP requirements, says Tax Consulting SA.

This may feed into the additional administration and precautionary requirements that follow from SA’s greylisting status.

The introduction of the SARS AIT process and adherence to BoP requirements are essential for maintaining the integrity of cross-border transactions and ensuring South Africa’s compliance with international anti-money laundering and counter-terrorism financing measures, said the tax experts.

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