Taxpayers generally need to obtain confirmation that they are compliant with their tax affairs in South Africa, at some point or another. If you escape this in life, it will generally become your beneficiaries and legatees’ problem on death. Hence the saying, “death and taxes”.
Nikolas Skafidas
Tax Diagnostic Specialist
The previous system is well known. An individual taxpayer had to apply for a tax clearance, or “TCS PIN” to apply for a tender, to make use of their foreign investment allowance, to confirm their tax status as “emigration” from South Africa, etc. The system has just completely changed, and it is not easier.
Approval for International Transfer
On 24 April 2023, seemingly out of the blue, SARS updated its “Manage Your Compliance Status” webpage and announced a “new enhanced” TCS application form. The purpose of these enhancements is, according to SARS, “to facilitate the consolidation of Foreign Investment Allowance (FIA) and Emigration applications into a single application, ‘Approval International Transfer’”.
To contextualise this, a taxpayer who is a resident for tax purposes in South Africa is able to send up to R1 million out of South Africa per calendar year, called their Single Discretionary Allowance (SDA). Thereafter, TCS PIN approval is needed for the remittance of any further amounts in that year. On the other hand, a taxpayer who has ceased to be a South African tax resident does not have an SDA, which means that all amounts externalised from South Africa require TCS PIN approval. This can now only be done under the new SARS approval system.
A little self-audit
It is evident that the new SARS process represents a significant shift in the way that tax compliance is managed in South Africa. The new process requires far more detailed questions to be answered and can very well be considered a self-audit, due to the type of qualitative and quantitative fields which require a compulsory answer and corroboration.
SARS considers tax residency declared as critical
In the first instance, you need to disclose your tax residency. This is prepopulated, so will catch anyone who has permanently left and not previously emigrated formally with SARS or used one of the short cut approaches.
For non-residents, the effective date of non-residency is required, as well as proof of their non-residency (in the form of a SARS Non-Resident Confirmation Letter) and their current country of tax residency.
It can get complex, quickly
The next question speaks to the details of the nature of the amount to be remitted. The form operates on a compulsory field basis, so all the requested details must be completed. This can start with seemingly simple details, such as trust interests, shareholding, and loans to trusts internationally. Where it gets more complex is the source of each amount that makes up the total value of the amount to be remitted. Each item cascades into even more detail required, and especially where any structures are involved there is supporting documents required.
SARS wants you to go on record with all wealth
The form further requests the detail of all assets and liabilities which are held by the taxpayer, both local and foreign. This makes up for 38 categories in total. These assets and liabilities must be included, at cost, with supporting documents required, for the previous three tax years.
In the past, it was mainly high net worth individuals that were subject to a higher level of scrutiny by SARS than other taxpayers. However, the “new enhancements” introduced now appear to level the playing field and ensure that everyone is held to the same high standard.
SARS confirms the Enforcement Focus
According to SARS in a media statement issued on 03 May 2023, while the new process is aimed at making it easier for taxpayers to comply with their obligations, “it will be harder for taxpayers who are unwilling to comply”, and SARS further states that –
“The additional information requested on the Approval for International Transfer (AIT) Application, allows SARS to ensure that all required tax payable has been accounted for and, if required, address any non-compliance that is detected through a verification and/or an audit”.
Put differently, SARS will use the information provided in the application to determine if that taxpayer have been compliant in their dealings with SARS. Where a discrepancy arises, this results in further verification or a formal audit by SARS. Taxpayers must exercise a much higher degree of diligence and precaution, ensuring that their affairs are in order, and they have the documents that will be required.
The Value of a Good Tax Practitioner
The new TCS process is a significant development in the management of tax compliance in South Africa, and it will have important implications for taxpayers seeking to transfer funds out of the country. It is recommended that such taxpayers seek assistance from a qualified and competent tax practitioner in completing the form and attending to the verifications that follow.
We have already been approached by various industry bodies and organisations to train their practitioner members and financial advisors on these new requirements, as this is expected to become a very important part of the modern tax, accounting and financial advisor practice moving forward.
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