New emigration tax rules could backfire for SARS: expert

The South African Revenue Service’s (SARS’) new administrative regulations for South Africans moving money offshore could come back to bite to it.

In April 2023, SARS took many industry players by surprise by introducing the Approval International Transfer (AIT), which alters the administrative requirements for emigrating for tax purposes and investing money offshore.

SARS said that the AIT will further align its legislative framework with that of the South Africa Reserve Bank (SARB), especially in regard to emigration.  

However, Harry Scherzer, CEO of Future Forex, has expressed concerns over the new laws.

“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 are the changes?

Before the AIT, those looking to move money offshore due to emigration would have to acquire an emigration-specific “Tax Compliance Status (TCS)” Pin from SARS.

Whereas South Africans looking to move money offshore for investment purposes would need a “Foreign Investment Allowance” (FIA) TCS Pin.

With the pin, South Africans could take up to R10 million a year out of the country without restrictions – on top of the R1 million that could be taken out without any prior approvals.

Although the AIT still allows South Africans to take the move the same amount offshore, the approval requirements are far more strict.

“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.”

Problems

However, he noted that the new information and documentation required to get an AIT is far more complex than it should be.

According to Tax Consulting South Africa, the AIT system 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.

Scherzer said that the need for taxpayers to list and assign a value to all local and foreign assets and liabilities could lead to lengthy delays in acquiring an AIT – SARS will also need to verify this information which will also lead to 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 added that the new requirements could simply result in South Africans not moving their money offshore, which would rob the broader 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.

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