SARS coming after directors in South Africa

New Reserve Bank rules have made SARS the gatekeeper for offshore directors’ fees, meaning non-resident directors now face stricter compliance, longer approval processes, and increased delays.

This was explained by Tax Consulting SA’s Senior Attorney of Exchange Control & SARS Engagement, Michelle Phillips, and Senior Tax Attorney, Bronwin Richards.

They warned that non-executive directors who are non-resident for South African tax purposes are increasingly experiencing delays and uncertainty when seeking to remit directors’ fees offshore.

This follows recent regulatory amendments, which were published by the South African Reserve Bank (SARB).

These amendments formally position the South African Revenue Service (SARS) as the primary compliance gatekeeper for the externalisation of income. “The consequences are significant,” Phillips and Richards said.

“Directors’ fees may no longer be transferred offshore unless both SARS tax compliance requirements and exchange control conditions are satisfied, and in the prescribed sequence.”

They noted that reports are already emerging of directors’ fees being held locally pending SARS approval, thereby delaying remittances by six weeks or more.

“For directors remunerated on a quarterly basis, the new regime introduces practical and operational constraints, necessitating proactive planning,” the tax experts said.

Phillips and Richards explained that, going forward, directors’ fees will be treated as a distinct, fully regulated category of outward payments.

Now, they may only be transferred offshore once both SARS tax compliance and exchange control requirements are satisfied.

“Following representations by Authorised Dealers, SARS and other market participants, Section B.3(B)(iii) of the Authorised Dealer Manual was amended,” they said.

This amendment makes one thing explicit – any offshore transfer of directors’ fees to non-residents or individuals who have ceased to be South African tax residents cannot proceed without formal SARS approval.

Phillips and Richards explained that Authorised Dealers may process the offshore transfer of directors’ fees only in cases where –

• A board resolution from the remitting company confirms the amount payable to the director
• The director’s non-resident tax status is clearly established
• The requisite SARS tax compliance approval has been obtained.

“This removes any uncertainty as to whether directors’ fees may be treated informally or grouped with other income streams. They are now recognised as a distinct category of regulated outward payment,” they said.

A message for non-resident directors

“Before any directors’ fees may be remitted, SARS must confirm the director’s tax compliance status,” Phillips and Richards said. “The approval required depends on whether the director remains registered on eFiling.

Where the director is registered with SARS, they must obtain an Approval for International Transfer (AIT) PIN.

“The AIT process was introduced by SARS in April 2023 and has now been fully aligned with the exchange control framework governing income payments to non-residents, including directors’ fees,” Phillips and Richards explained.

On the other hand, where the director is not registered with SARS, they must obtain an International Transfer (MLC) from SARS.

“In both cases, the underlying principle is the same: Authorised Dealers may not release funds unless SARS has confirmed tax compliance. This can potentially create a bottleneck and delay or disrupt the timing of directors’ fee payments,” the tax experts said.

Phillips and Richards explained that for non-executive directors who externalise fees quarterly, the new rules introduce practical and operational constraints that should not be underestimated.

“In practice, an AIT PIN can take longer than six weeks to obtain. SARS generally requires proof of available liquid funds before issuing approval, limiting the ability to apply in advance of payment,” they said.

However, it remains unclear whether SARS will allow a single approval to cover multiple payments or require a new PIN for each remittance.

“Different banks may also adopt different internal interpretations when implementing the rules,” Phillips and Richards said.

“As a result, directors may find that their fees are not immediately transferable, purely due to procedural timing rather than any substantive non-compliance.”

As a result, non-executive directors are already seeing their directors’ fees held locally pending SARS approval, delaying scheduled remittances.

“Given the current uncertainty around how these rules will be applied, early engagement with an expert is critical,” they said.

In this heightened regulatory environment, Phillips and Richards stressed that proactive planning has become essential.

In practice, this involves assessing whether an AIT PIN or MLC is required in each instance, strategically managing SARS applications, and liaising with Authorised Dealers to facilitate compliant offshore remittance of directors’ fees.

For a non-resident non-executive director who externalises fees quarterly, or companies paying directors’ fees offshore, they said a pre-payment review is critical.

“In short, the days of casual offshore payments are over. SARS is now in control, and missing a step can mean your directors’ fees do not leave South Africa on time,” Phillips and Richards said.