Expats, You’re Using a DTA Across the Border; What About Your Precious Funds?
Cue SARS’ AIT Application
As of 24 April 2023, the South African Revenue Service (SARS) changed the rules by which taxpayers have to play when it comes to applying for funds to be transferred internationally. If you have not heard by now, SARS’ introduction of a new dynamic application called Approval International Transfer (AIT) is enhanced and involves a strict Tax Compliance Status (TCS) verification process.
Delano Abdoll
Legal Manager: Cross-Border Taxation
John-Paul Fraser
Tax Attorney
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At face value, it seems clear-cut and self-explanatory for compliant taxpayers, right? However, this is certainly not the case for taxpayers who are either non-compliant or unwilling to be tax compliant.
SARS’ request for additional information on the new AIT application allows SARS to address any non-compliance that is detected through its verification processes for taxpayers transferring funds out of South Africa (SA). This affects applicants who are considered “resident” or “non-resident” in SA for tax purposes. The latter is inclusive of both financial emigrants and those who have ceased to be residents in SA due to the application of a Double Taxation Agreement (DTA).
The Old Adage Holds True: The Only Constant Is Change and Taxes
Previously, when one sought to either financially emigrate or transfer large sums of money out of SA, they would either have to complete the “Emigration” or “Foreign Investment Allowance” application types, respectively. Quite simply, one would need to obtain separate security PINs to verify the TCS of a taxpayer.
The new AIT application has now consolidated these application types into a single AIT PIN and applies to both South African tax residents who are 18 years and older and transferring more than R1 million out of SA in a calendar year, as well as to taxpayers who have ceased their tax residency in SA but need to transfer funds abroad, from a South African source.
SARS, having taken note of the fact that the South African Reserve Bank has relaxed certain exchange control requirements, is also aware, in less technical terms, that only South African tax residents may be permitted to avail of a Single Discretionary Allowance (SDA) within an overall limit of R1 million per calendar year without the requirement to obtain a TCS PIN letter.
With that in mind, there are no two ways about it that requesting a valid AIT PIN is needed for both:
- Tax residents in SA, who seek to transfer more than R1 million out of the country, per calendar year; and
- Tax non-residents in SA, who have successfully obtained their Notice of Non-Resident Tax Status confirmation letter from SARS but seek to transfer any amount out of the country, per calendar year. Of importance, is that this includes SA expats using a DTA.
Where Do SA Expats Using a DTA Fit, In Relation To The AIT Application?
A question encountered in practice these days, is how does the new AIT application affect SA expats who are abroad whilst using a DTA to be temporarily non-resident in SA for tax purposes?
First off, making use of a DTA is only one of the ways in which an SA expat can formally update their South African tax residency status with SARS from a resident to a non-resident. In doing so, SA expats who are non-resident by means of a DTA are legally protected from the burden of having foreign-sourced income taxed twice – i.e., by both SARS and the revenue authority of the host country where they are (temporarily) living and working.
DTAs are also appealing to many SA expats, due to the change in their tax residency status with SARS being temporary in nature, as opposed to permanent and final. In turn, this caters for them returning to SA when they have hung up their travel bags and are ready to settle down in SA for the foreseeable future.
Until such time, transferring every cent out of SA as a DTA non-resident, now “fits like hand in glove” with the new AIT application.
In a Game of Hide and Seek SARS Now Has the Upper Hand
It is never pleasant being the bearer of bad news, but we need to face the reality of the transparency required under the new AIT application for SA expats, including those who are tax non-residents whilst using a DTA.
Notwithstanding the temporary nature of using a DTA to be a tax non-resident in SA, even these individuals will be required to submit the following general supporting documents to SARS in respect of an AIT application:
- Relevant material that demonstrates the source of the capital to be invested, as specified on the application;
- Statement of assets and liabilities (local and foreign) for the previous three tax years;
- Relevant proof that they have ceased to be a resident for tax purposes in SA, including the date on which they ceased to be a resident – i.e., a Notice of Non-Resident Tax Status confirmation letter issued by SARS, which includes an “Effective Date” of when they became non-resident;
- Details of any locally listed securities that they will be transferred to an exchange that is outside SA (where applicable); and
- An applicable Power of Attorney where their TCS application is submitted on their behalf.
It Does Not Stop There
There are also specific supporting documents required to prove the source(s) of the Total Value of an International Transfer. Examples of transactions requiring specific supporting documents range from transactions funded through loans all the way through to transactions funded through the sale of cryptocurrency.
This includes funds to be transferred being sourced from the sale of property, in which case, the following specific supporting documents will be required:
- Original letter of the Conveyancer to confirm the transfer of the property and that the money will be transferred from his/her trust account; or
- Proof of receipt of the proceeds together with the applicant’s bank statement not older than 3 months.
- Capital Gains calculation on the sale of property.
- Where the property was jointly owned, the proceeds of the sale to be clearly split as per source document.
In view of SARS’ drive to enforce tax compliance, it would appear that transferring funds out of SA under the new AIT application process is far more in-depth and revealing than what SA expats have known before.
Navigating The Narrow Path of The AIT Application
SARS continues to make drastic changes to increase its financial surveillance and tax compliance requirements. Navigating this new narrow path and the ever-evolving tax landscape requires the assistance of tax professionals – especially for SA expats who remain non-residents using a DTA.