Rich people taking millions out of South Africa

With the rand at its strongest level this year, some South African high-net-worth individuals (HNWIs) are looking to move millions offshore urgently, but they face compliance and tax challenges which could cost them this opportunity.

On Thursday, 9 October, the rand hit its strongest level against the dollar in over a year, strengthening to below R17.09 to the dollar in morning trading.

Against this backdrop, Tax Consulting SA’s expatriate tax team manager, Lambert Roberts, explained that many HNWIs are enquiring about urgently moving funds offshore.

To take advantage of the currency’s current strength, these individuals are looking to move funds offshore before the end of the year.

“While this offers a timely opportunity, there is confusion in the market about which processes apply to which thresholds when South African tax residents move funds offshore,” Roberts said.

This is especially the case for wealthy South Africans who want to transfer more than R10 million. Unfortunately, this confusion can also lead to them missing this opportunity.

“When South African residents move money offshore it involves both the South African Revenue Service (SARS) and South African Reserve Bank (SARB), depending on the amount in question,” he explained.

There are three key thresholds South Africans should be aware of when moving funds overseas – amounts up to R1 million, amounts between R1 million and R10 million, and amounts over R10 million.

For amounts up to R1 million, no SARS clearance is required. “Any amount below R1 million per calendar year falls under the Single Discretionary Allowance (SDA) and can be externalised without approaching SARS for prior approval or tax clearance,” Roberts said.

To move funds in the R1 million to R10 million range, allowed under the Foreign Investment Allowance, Roberts said South African tax residents must obtain a SARS Approval of International Transfer (AIT).

This serves as a Tax Compliance Status (TCS) Pin. “Once issued, your authorised dealer (typically your bank) will automatically accept the SARS AIT and transfer up to R10 million, without having to involve SARB.”

Finally, for amounts exceeding R10 million, SARS still has to issue the AIT, but the taxman applies a far more rigorous audit process. “This high level of scrutiny requires a professionally prepared application from experts,” he said.

In addition, Roberts warned that any amount above R10 million demands a separate layer of approval from the SARB’s Financial Surveillance department, submitted by an authorised dealer.

“In our experience, SARB approval is a mere administrative step and formality following SARS issuing an AIT Pin. In practice, we have never encountered a rejection or undue delay from SARB,” Roberts said.

Wealthy South Africans should act quickly

If, for example, SARS issues an AIT Pin reflecting tax clearance for R50 million, Roberts said the South African tax resident may immediately transfer R10 million abroad under the FIA.

However, to transfer the remaining R40 million, they first need SARB clearance. Dealing with these cases, Tax Consulting SA has found that it can typically take two to three weeks, meaning clients should plan accordingly.

“An AIT clearance from SARS is an excellent way to ensure you are fully reconciled with SARS and ready to act should market conditions turn favourable,” Roberts said.

“We recommend that all HNWIs apply for an AIT proactively, considering the total amount they plan to externalise within the next 12 months, even if they do not intend to transfer the full funds immediately.”

An AIT Pin is valid for 12 months, which gives South Africans flexibility in terms of timing and strategy. In summary, wealthy South African tax residents looking to move their money offshore should –

• Step 1: Obtain SARS AIT/TCS Pin
• Step 2: Externalise the first R10 million under the FIA
• Step 3: Apply via their bank to SARB for approval to move any amount above R10 million

“Moving funds offshore does not need to be complex, but it does require careful sequencing and a clear understanding of the distinct roles of SARS and SARB,” Roberts added.

“SARS confirms your tax compliance, while SARB governs how and when capital may flow out of the country.”