The South African Revenue Service (SARS) is cracking down on offshore money transfers under new exchange control rules.
This means that South Africans living abroad are facing a far stricter environment when trying to move money out of the country.
Under the new exchange control framework, banks now require an Approval of International Transfer (AIT) before funds can be transferred.
Speaking in an interview, Jonty Leon, managing partner at Leap Group—an international tax compliance firm—warned that without it, transfers can be stopped and accounts effectively frozen.
According to Leon, the shift is intentional. “I think it is both a compliance clean-up, as well as a bit of an enforcement mechanism that SARS is now using,” he said.
He added that SARS wants to ensure that all taxpayers are compliant and that they’re extracting every last bit of taxpayer money possible.
“Under the old system, all you needed was a good-standing tax clearance certificate, and you were able to move funds abroad,” Leon said.
“Under the new system, the AIT is not just a form that needs to be filled out, but it’s an entire application process where SARS is able to dig into all of your affairs before they will allow you to move money out of the country.”
He warned that a major risk is that many expats may not realise how exposed they are—particularly regarding their tax residency status with SARS.
“The majority of South Africans that we deal with are outside of South Africa and may have been outside for many years,” he said.
“However, with the AIT application, you have to declare to SARS if you are a resident or non-resident, and this makes a massive difference.”
Leon explained that if you’re a tax resident of South Africa, SARS can look into your local income and assets, as well as your foreign income and assets.
Banks are freezing accounts
If you’re a non-resident, they can only look at your South African income and assets. The danger comes when individuals are incorrectly classified.
“If you are not noted correctly as a non-resident and you go and apply for an AIT, all of a sudden you’ve opened yourself up to SARS looking at your entire estate across the world,” Leon warned.
He added that many South Africans abroad may be operating under a false sense of security.
“Every single one of our clients is someone who has realised that they aren’t actually compliant,” he said. For those caught out, the consequences can be severe.
“It gets quite scary for taxpayers abroad because they may have been there for many years, and now they’ve got the worry that SARS wants to tax them on everything they’ve been building outside of South Africa.”
Banks are also playing a far more active role in enforcement when individuals try to move money offshore.
“If you try to move money outside of South Africa, but you don’t have the requisite approval from SARS, banks are now required to freeze your account,” he said.
“This until such time as you are fully compliant,” adding that this is happening quite often now. For expats who may find themselves non-compliant, Leon stressed that early action is critical.
