Last week, as most South African’s were enjoying a long weekend, major exchange control changes were stealthily introduced which will adversely impact any South African wanting to emigrate, or to use their annual ZAR 10 million annual investment allowance.
South Africa (SA) has had some sort of restrictions on monetary flows exiting its borders, i.e. curtailed freedom of movement of funds, since 1961, when the first measures to stop the exporting of funds from the country and thereby the depletion of the country’s capital base were introduced. Gradually, allowances were made to permit South Africans to invest more and more offshore, with general or explicit approval from the SA Reserve Bank (SARB). Since 1 April 2015 the annual allowance, i.e. the SA earnings you could take out of the country without express advance SARB approval, was increased from R4 million to R10 million.
Thus, under the old FIA process, individuals could externalise funds of up to R10 million per annum simply by obtaining a Foreign Tax Clearance from SARS, applied for on a FIA 001 form. This was basically a two-pager containing the applicant’s details, particulars of the foreign investment and the details of the applicant’s bank which would be transferring the funds.
Now, SARS says it has “rebranded” the R10 million FIA to a new “International Approved Transfer” (IAT). In our view this is not only a “rebranding”, but also a “red-taping” as the process is now much more complicated for individuals and makes exporting funds a real pain.
The SARS website states that the new process consolidates the FIA and the Emigration Applications processes. This would partly explain the new requirements in relation to disclosure of world-wide assets and liabilities. But what about South Africans who are not going anywhere and just want to pay their offshore expenses? It is not like R10 million is worth as much offshore as it used to be, and now SARS is making it nearly impossible for certain individuals to take the funds offshore.
The first significant new question in the application is whether the applicant is considered a “resident” or a “non-resident” for South African tax purposes. In the case of non-residents, SARS requires that a “non-resident confirmation letter” be submitted. Fair enough, this links into their argument of consolidating the process with the Emigration application.
Further questions include whether the person is a beneficiary to any trust, holds any shares in companies, and have made any loans to trusts. Now why would SARS need this information when someone just wants to pay their offshore bills or add to their offshore investments?
Another very intrusive (and irrelevant in our opinion) requirement added is proving what your world-wide assets are and what it cost you to acquire them. Previously you only had to disclose South African assets and liabilities for the last three years. The previous requirement could probably be justified by the view that you cannot externalise what you do not have in South Africa, but what relevance does your world-wide assets have, it does not even fall within the exchange control net?
And to make matters worse, SARS also requires disclosure of the source of funds which were used to acquire all assets. We suspect that this is to police whether authorised after-tax funds were used to buy offshore assets, but still, there is no relevance to the new application. This requirement may be impossible for people with portfolios which were built up over many years.
We could think of only two other explanations for these new irrelevant questions to the application, namely:
- SARS wants to go after possible previous irregularities by taxpayers; or
- Treasury is panicking about the ever-increasing funds leaving SA as a result of various factors such as 12-hours per day without electricity, political instability, the ever-decreasing value of the ZAR and not to mention the grey listing of SA which will have a snowball effect on the quality of life of South Africans.
So what is left?
South Africans will have to make use of the R1million for persons per annum for every person over 18 years of age. Given the extremely low value of the ZAR compared to hard currency, R1 million per annum will not get you very far if you have expenses to cover offshore, such as school fees. This is really bad news for beleaguered South Africans and will surely make many more consider how best to internationalise their wealth lest exchange control restrictions get even tighter.
If you would like to discuss how this could impact you, contact us today.