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New exchange control and SARS procedures for emigrants.
New exchange control and SARS procedures.
Some advisors have been encouraging expats to financially emigrate through the SARB as a way to break tax residency. However, this is only one factor considered when determining whether a person has broken tax residency. Government wants to encourage all South Africans working abroad to maintain their ties to the country. Consequently, this concept of financial emigration will be phased out by 1 March 2021.
With effect from 1 March 2021, it is proposed that an emigrant and a resident will be treated identically for exchange control purposes.
The tax rules governing tax residency will remain unchanged with the concept of being either ordinarily resident or resident in terms of the physical presence test. SARS will rely on the co-operative practices of sharing of financial information between South Africa and other offshore jurisdictions.
SARS is going to become more stringent in their verification process when a person wishes to remit capital amounts of more than R 10 million per annum offshore. When making an application to SARB, an individual will be subject to a rigorous verification process, triggering risk management practices to verify the source of the funds to be remitted and to confirm that all taxes have been paid to SARS, in line with any anti-money laundering and counter-terror financing requirements prescribed in the Financial Intelligence Centre Act (2001).
South Africa signed the Multilateral Competent Authority Agreement on automatic exchange of financial information in September 2017, and is currently sharing financial information with 105 countries (as of 25 April 2019).
These countries include Mauritius, Panama and the United Arab Emirates. As per this exchange of information agreement SARS will be provided with the financial account information of foreign accounts where the reportable person on record is as a South African tax resident. From a recent televised interview with the SARS Commissioner, Edward Kieswetter, SARS now have systems in place to start analysing this information and to start identifying those taxpayers who have been reported on and who have not disclosed similar information to SARS.
The proposed relaxation of the exchange control restrictions for emigrants is very welcome and we look forward to seeing the detailed changes to be published by SARB.
South African residents wishing to externalise large amounts of funds should ensure that their affairs are in order before commencing this process.
Author: SHARON MACHUTCHON, Tax Consultant.
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