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How do allowances change when I am a non-tax resident

By September 22, 2022October 20th, 2023Newsletter

How do allowances change when I am a non-tax resident

September 22, 2022

How-do-allowances-change-when-I-am a non-tax resident_

You’ve likely heard by now that tax emigration is in and financial emigration is out, which begs the question, “How has exchange control changed for non-tax residents?”. Unfortunately, as a non-tax resident, moving money out of South Africa is not as simple as calling your bank and asking them to transfer the funds to your offshore bank account. The paperwork is not completely out the window and some important forex rules in South Africa remain in place. It’s important to be abreast of these, lest you find yourself on the wrong side of the taxman where hefty penalties can be levied.

A quick recap: what is a non-resident?

Prior to March 2021, expats who left South Africa permanently and completed a financial emigration with the South African Reserve Bank (SARB) were seen as non exchange control residents. Once marked as a non-resident, any assets left behind in South Africa were seen as blocked assets for exchange control purposes. This enabled the bank to track funds leaving South Africa and assisted in keeping an eye on all cross-border capital transfers.

These days, it’s all about your residency with the South African Revenue Service (SARS). If an expat no longer meets the requirements of being a tax resident of South Africa as set out by the residency based tests, they must complete a tax emigration with SARS. Upon completion, your status changes to a non-resident taxpayer and you are no longer liable for tax on worldwide income in South Africa. The assets you leave behind, however, are no longer set aside as ‘blocked assets’ that have to be overseen by a bank.

Resident allowances

Before we look at transfer options for non-residents, let’s quickly recap the allowances available to residents for moving liquid funds from South Africa. A resident is a natural person (citizen or permanent resident), over the age of 18, who is either still living in South Africa or a South African living abroad.

  • Single Discretionary Allowance (SDA): You can move a total of R1 million per person out of South Africa every calendar year, without prior approval from SARS.
  • Foreign Investment Allowance (FIA): Amounts between R1 and R10 million can be transferred, provided that a Foreign Investment Tax Clearance Certificate (or Tax Compliance Status) is obtained from SARS prior to the transfer.

Non-resident allowances

As a non-tax resident, you no longer have the option of utilising your Single Discretionary Allowance to move money out of South Africa. Instead, you need to distinguish between moving funds from an income source and funds from a capital source.

What are funds from an income source?

Funds from income sources would include rental income, dividends and pension income among other things. You do not need to obtain permission from SARS to transfer these funds, but the bank that handles the transfer will require you to submit a Good Standing Clearance Certificate, obtained from SARS, on an annual basis. A Good Standing Certificate simply confirms that you have no outstanding tax matters. It can be requested via SARS efiling online.

What are funds from a capital source?

Funds from a capital source would include proceeds from the sale of shares, a property, retirement annuities or an investment, for example. This is where SARS stick in their noses before you’re allowed to transfer the funds offshore. You can only transfer funds from a capital source if you have a valid emigration or foreign investment Tax Compliance Status.

What is an emigration tax compliance status (TCS)?

Let’s assume that you’ve jumped through all the administrative hoops of a tax emigration process with SARS. The final step in this emigration process is to apply for an Emigration Tax Compliance Status (TCS). An Emigration TCS serves as a confirmation your tax affairs are up to date and in order. In addition, it serves as a mechanism for SARS to investigate the source of funds you have left in South Africa and assists them in ensuring these funds were obtained legitimately before they leave the country. The clearance is valid for 12 months from its issue date. Any funds from your remaining capital assets can be transferred under this certificate, as long as it’s still within its validity window and transfer limit.

In the event that your emigration clearance certificate has expired and you now have liquid capital funds that have to be transferred, you need to apply for an Foreign Investment TCS. You can apply for an Emigration TCS only once, therefore any subsequent transfers can only be done utilising your Foreign Investment Allowance.

What is a foreign investment tax compliance status (TCS)?

The purpose of a Foreign Investment TCS application, is very similar to an Emigration TCS in that it ensures that the funds leaving South Africa were obtained from legitimate sources and that your tax affairs are in order. To this end, SARS will require the following information in order to investigate and ultimately approve the application.

  • Proof of Funds: The funds need to be available in your bank account – you can’t keep the funds in an investment while waiting for the transfer to be approved.
  • Source of Funds: The source of funds that will be transferred needs to be disclosed. SARS provides a list of documents that needs to be submitted based on the type of assets you liquidated.
  • Statement of Assets and Liabilities: You need to provide a statement of South African assets and liabilities for the three preceding tax years.

Once the certificate has been issued, it is also valid for 12 months. If it expires, you will need to apply for a new certificate every time you want to transfer liquid funds from the sale of a capital asset offshore.

FinGlobal: here to help you to transfer your funds correctly and quickly

Not sure about your residency status and how to move funds out of South Africa? FinGlobal is here to assist by assessing your situation and providing solutions that ensure you achieve your financial goals, all while rest assured that everything is fully compliant. From international transfers to tax emigration and tax clearances, we’re ready to assist you.