Fearmongering and misleading information are circulating over the introduction of a new process to obtain emigration and foreign investment allowance tax clearance certificates.
Some reports suggested that the disclosure requirements have changed dramatically, and stricter exchange control is being introduced. But exchange control and international tax practitioners have welcomed the new process.
The South African Revenue Service (Sars) said in a statement it needed to rationalise and speed up its approval system because a growing number of taxpayers are requesting third-party verification, including requests for tax clearance approvals for the remittance of funds abroad and emigration.
“In addition, following the announcement of the abolition of emigration as an exchange control concept in 2020, the South African Reserve Bank has removed the requirement to apply to emigrate financially. This has necessitated changes to Sars’s processes and forms.”
The new process, introduced on 24 April, consolidates the foreign investment allowance and the emigration tax clearance applications into a new Approval International Transfer (AIT) application.
No surprise here
Hanneke Farrand, the managing director of Farrand Global, says the changes and the request for additional information are not unusual in the context of the common reporting standard on the automatic exchange of financial information.
“The new process comes down to more detailed and targeted requests for information regarding exit capital. It is nothing more and nothing less.”
She sees the new form and requirements as a positive development. “This is just the codification and simplification of the legislative changes to the emigration process that was announced in 2020.”
Some of the main features of the new capital flow management framework are stronger measures to fight illegitimate cross-border financial flows and tax evasion, and enhanced cross-border reporting requirements.
What has happened in essence is that the four processes have been consolidated into two: one form for emigration and foreign investment allowance tax clearance, and one for good standing (that also covers tender tax clearance applications).
Previously, taxpayers had to obtain a tax clearance certificate (TCS) PIN for emigration, a TCS PIN for the R10 million foreign investment allowance, a TCS PIN for tenders, and one for good standing.
Hugo van Zyl, an exchange control and tax specialist, says Sars alerted recognised controlling bodies in October last year that its processes will be aligned with the legislative changes. These changes should therefore not be seen as a surprise or as the introduction of a more restrictive exchange control policy.
The new questions
On the new form, taxpayers are asked three additional questions when requesting tax clearance for the remittance of funds abroad. They are:
- Are you a beneficiary of a trust (local or foreign)?
- Do you have a shareholding directly/indirectly in any legal entity (local or foreign) of 20% or more?
- Do you have any existing loan(s) to a trust (local or foreign)?
Sars also asks taxpayers to indicate their tax residency status under which the transfer is made.
The additional information requested on the AIT application will ensure that all the tax that should have been paid has been paid. If not, Sars can address any non-compliance through a verification or an audit, it said in its statement issued on 3 May.
Tax non-residents are already required to retain records in respect of their shareholding in “property-rich” companies, despite their tax emigration, because their subsequent disposal could attract another round of capital gains tax if they hold more than 20% shareholding in a company and subsequently sell their shares, Van Zyl says.
The effect of grey-listing
The questions about company shareholding and trusts also relate to recent changes to several pieces of legislation, notably the Financial Intelligence Centre Act (Fica) and the Trust Property Control Act, aimed at getting South Africa off the Financial Action Task Force’s grey list.
The legislation now requires the keeping of a register of the ultimate beneficial owners of trusts and company structures at the Master of the High Court and the Companies and Intellectual Property Commission. South Africa now has transparent disclosures of interests in these structures.
“In that context, we are not surprised that Sars has improved the information requests in the form. This information is probably already disclosed in terms of the common reporting standard on the automatic exchange of information,” Farrand says.
“If you live in a world where you think that your interest in an offshore trust or company is still a secret to Sars, you are years behind what has been happening internationally.”
Given that South Africa is on the grey list, it is not a surprise that there will be additional questions relating to ultimate beneficial ownership in trusts and more Fica disclosure requirements, Van Zyl says.
“The more transparent we are, the quicker we will be able to get off the grey list,” Farrand says.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute financial planning, legal or tax advice that is appropriate to every individual’s needs and circumstances.
