SARB removed the requirement to financially emigrate from South Africa in 2021, but SARS had not yet aligned their processes with the emigration change until now.
By Jonty Leon, attorney and tax practitioner, and Reinert van Rensburg, attorney and tax practitioner at Leap Group
The tax compliance status in terms of “emigration” has remained an option on efiling even though SARB removed the concept of emigration. To ensure SARS and SARB aligns their requirements and processes, SARS removed the “emigration compliance” process to confirm that the financial emigration process ceased to exist and introduced a new form of compliance review in terms of “Application for International Transfer” that remains applicable to taxpayers ceasing their tax residence.
Even though the concept of emigration was removed by SARB, the expatriation of funds by non-residents still needs to be reviewed. A taxpayer who is formalized as a non-resident does not have the same benefits as normal residents in terms of the expatriation of funds. South African tax residents may utilise their discretionary allowance up to R1-million to expatriate funds to foreign bank accounts, but non-residents do not have this luxury. Non-residents can only expatriate up to R1-million during the calendar they ceased to be residents as a travel allowance and will need to obtain SARS compliance to expatriate funds in subsequent calendar years.
However, notwithstanding the discretionary allowance for residents, and travel allowance for non-residents, both types of taxpayers will need to obtain the new International Transfer Compliance if they intend to expatriate more than R1m during any calendar year.
It is important to note that even though the financial emigration process does not exist anymore, the new formal process of Tax Emigration still needs to be completed by taxpayers who leave the country and who intend to reside abroad on a permanent basis. All taxpayers need to inform SARS if they cease to be residents, and the onus of proof is on the taxpayer to prove they do not meet the requirements of the South African residence tests.
The new application for International Transfer Compliance process forms part of the Tax Emigration process to ensure the taxpayer who ceased to be a resident, can expatriate the necessary funds during their move to a new country and that all exchange control requirements were met. Currently, it will remain applicable to taxpayers who cease to be residents to ensure all necessary information is declared to SARS for a thorough verification of their financial situation, whether they intend to expatriate funds or not.
The International Transfer Compliance process serves a crucial role for SARS, ensuring careful consideration of all taxes applicable to the taxpayer’s funds and guaranteeing their full compliance with the tax events that led to the accumulation of said funds. Under the new process, taxpayers are now required to declare their residency status, distinguishing between residents and non-residents. For non-residents, it is necessary to furnish evidence of formalising their non-resident tax status with SARS.
The residence status of a taxpayer is extremely important for SARS to correctly assess the taxpayer’s compliance position, because if the taxpayer is a resident SARS will need to verify the taxpayers worldwide financial portfolio. In the case of a non-resident, SARS only has a taxing right on the non-resident’s South African sourced income and will only assess the taxpayers South African financial position to ensure he or she is fully compliant.
The implementation of the Application for International Transfer process by SARS marks a significant step towards enhancing tax compliance and regulating financial flows, also marking the definite end to the old financial emigration process. This requirement applies to both resident and non-resident taxpayers, ensuring that they fulfil their tax obligations and adhere to exchange control regulations. This is noted specifically in the SARS media statement of 3 May 2023, which states, “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”.
Furthermore, the ongoing communication and collaboration between SARS and SARB promise to streamline the compliance process further. Compliant taxpayers can look forward to a more seamless experience when transferring funds internationally, as these two entities work in tandem to harmonize their respective procedures. It will, on the other hand, cause a bigger headache for non-compliant taxpayers due to the intensive verification of the International Transfer Compliance process.