Exchange Control and Tax Residency in South Africa
The South African Reserve Bank (SARB), in collaboration with various financial institutions, maintains a comprehensive record of the residency status of all South African banking customers.
Lovemore Ndlovu
Head of SARB Engagement and Expatriate Compliance
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This practice is integral to their financial surveillance and regulatory compliance efforts, particularly considering South Africa’s greylisting status in February this year.
Misconceptions about Non-Resident Account Conversion
A crucial aspect to comprehend is that a change in tax residency status necessitates a corresponding update in one’s banking status as required by SARB. When an individual ceases to be a tax resident in South Africa, their banking status must be adjusted, and their bank accounts converted to tax non-resident status. In the past, these accounts were converted to a “Blocked Capital Account,” which unfortunately led to confusion and the mistaken belief that the account would be entirely inaccessible.
Navigating the Landscape of Fund Transfers
South African residents are granted the privilege to transfer up to R1 million out of the country annually through their Single Discretionary Allowance (SDA) without the need for tax clearance from the South African Revenue Service (SARS). Transfers exceeding the R1 million SDA limit will require an Approval International Transfer (AIT) Tax Compliance Status (TCS) PIN from SARS.
Conversely, non-residents are permitted to transfer up to R1 million as a Non-Resident Travel Allowance (TA) in the same calendar year that they formally cease their tax residency. This allowance is a once-off dispensation and cannot be utilized in subsequent calendar years. It is crucial to differentiate between the TA and the SDA, as any remaining SDA balances cannot be utilized under the TA. Transfers exceeding the R1 million TA limit will also necessitate an AIT TCS PIN from SARS.
Non-residents, beyond perhaps the once-off travel allowance, do not have access to the SDA, which means that all capital transfers out of South Africa, barring certain specific exceptions, require SARS approval.
Notably, for transfers exceeding R10 million, in addition to an AIT TCS PIN from SARS, approval from the Financial Surveillance Department of SARB is required before the funds can be transferred by the bank. Such transfers typically trigger a comprehensive Risk Management Test, which includes verifying tax status, assessing the source of funds, and evaluating the transaction’s risk in compliance with anti-money laundering and counter-terrorism financing requirements.
Conclusion
The complexities surrounding the cessation of tax residency in South Africa demand expert guidance. Failure to grasp the intricacies of exchange control requirements can lead to confusion and unintended consequences. As one embarks on the journey of emigration, it is highly advisable to seek assistance from professionals who are well-versed in these intricacies. Your financial landscape requires careful navigation, and expertise in both the requirements and practical realities hereof is indispensable for a smooth transition.