SARS makes it harder for South African trusts to send money offshore

South African trusts must now meet an additional tax compliance requirement before distributing funds to non-resident trust beneficiaries, adding another step to an already difficult process.

This is according to Tax Consulting SA’s Head of Trusts, Roxshanna du Toit, who said the new requirement took effect on 16 October 2026.

Under the change, South African resident trusts must obtain a Tax Compliance Status (TCS) Good Standing confirmation when presenting their Manual Letter of Compliance (MLOC) to an authorised dealer to transfer funds offshore.

The requirement adds another layer of SARS oversight to distributions between South African trusts and non-resident beneficiaries.

Historically, SARS did not approve the release of funds where a South African resident trust wanted to distribute money to a non-resident trust.

SARS later clarified that it would consider approving these distributions, provided certain conditions were met.

With this latest change, trustees have to navigate additional requirements before they can make these transfers.

Resident trusts must now present both their MLOC and confirmation of their TCS Good Standing status when approaching an authorised dealer to transfer funds offshore.

This means trustees must ensure that their tax compliance status is in order before proceeding with the distribution.

The change comes as SARS increases its focus on trust tax compliance and the reporting of beneficiary distributions.

It also follows broader regulatory developments affecting the sector, including expanded third-party reporting requirements and increased transparency over trust beneficiaries.

Du Toit explained that while SARS may approve distributions to non-resident trusts, such approvals are subject to conditions.

The non-resident trust must be a beneficiary of the South African resident trust, and the proposed distribution must comply with the resident trust’s trust deed.

All tax liabilities associated with the distribution must also have been settled or be capable of being settled.

Trustees must apply to SARS for an MLOC. The application is subject to verification and approval and must be supported by trust documentation.

They must also provide information substantiating the proposed distribution and its tax implications.

The new TCS Good Standing confirmation is an additional requirement when the MLOC is presented to an authorised dealer.

This means that trustees need to consider both the underlying tax treatment of a distribution and the administrative requirements involved in transferring the funds.

Exchange control rules relaxed – but trustees face tougher regulations

Du Toit said the new requirement comes against the backdrop of changes to South Africa’s exchange control framework.

The South African Reserve Bank (SARB) has relaxed certain exchange control requirements, easing some restrictions on offshore transfers.

However, these changes do not remove the separate approval process SARS applies to distributions from South African trusts to non-resident trusts.

SARS has indicated that its process is intended to manage the tax risks associated with these transactions and ensure that relevant tax obligations are met.

The distinction is important because meeting exchange control requirements does not automatically mean a trust has satisfied SARS’s tax compliance requirements.

Trustees must consider both processes before transferring money offshore, du Toit explained.

While exchange controls may have been relaxed, the same cannot be said for trust requirements.

South African trustees have been hit with a series of changes that place greater administrative responsibilities on them. SARS has also stepped up enforcement of outstanding trust tax returns.

In October 2026, Tax Consulting SA senior tax consultant Sohail Arnoldus warned that SARS was sending final demand letters to trusts with outstanding income tax returns.

Under the published framework, trusts that fail to submit required returns after receiving a qualifying final demand may face monthly administrative penalties.

These range from R250 to R16,000, depending on the applicable penalty category and the trust’s taxable income. The penalties can recur for up to 35 months while the non-compliance continues.

The renewed enforcement follows a temporary reprieve in July 2026, when SARS cancelled penalties imposed on certain trusts for failing to submit their 2024 and 2025 income tax returns.

However, the cancellation did not remove the underlying obligation to submit outstanding returns.

Trustees remain responsible for ensuring that their trusts meet the relevant filing and tax obligations, even where a trust is inactive or has distributed its income to beneficiaries.

The proposed Regulation of Trusts Bill also points towards greater oversight of the sector.

Published for public comment in August 2026, the Bill proposes replacing the Trust Property Control Act of 1988 with a new framework for the administration and regulation of trusts.

Among other changes, it proposes greater beneficial ownership reporting, annual financial statements and annual returns, as well as expanded powers for the Master of the High Court.

These are proposed changes and would still need to become law before taking effect.

What trustees need to do

According to du Toit, the new offshore distribution requirement means trustees should determine whether their trust is tax-compliant before making payments to non-resident beneficiaries.

They must check that the proposed distribution is permitted under the trust deed and that the relevant tax liabilities have been, or will be, settled.

Trustees must also obtain the necessary MLOC from SARS and ensure they can provide a TCS Good Standing confirmation when presenting the documentation to an authorised dealer.

Given the tax and administrative requirements involved, trustees considering offshore distributions are encouraged to seek advice from a suitably qualified tax practitioner.

This can help them assess the tax implications, navigate the SARS approval process and ensure that the necessary compliance requirements are met before funds are transferred.