The Single Discretionary Allowance (SDA) and Foreign Investment Allowance (FIA) are two key financial tools that residents have to manage their foreign investments and transactions when making money transfers out of South Africa. However, these exchange control limits are precisely that – limitations. They’re there to control the flow of capital out of South Africa, and as such, there are rules and regulations in place that govern who can use these allowances, how they can be used, and when and why. Let’s break it down for you.
1. Transferring money out of South Africa – use it or lose it; it’s a calendar year affair
Unlike the tax year, which runs from March to February, the Single Discretionary Allowance (SDA) and Foreign Investment Allowance (FIA) are tied to the calendar year. This means your R1 million SDA and R10 million FIA allowance resets on January 1st every year. So, make sure to utilise these allowances before the year ends.
This timing also means that you can double-stack your international money transfers from South Africa, by using your exchange control allowances at the end of one calendar year and then again at the beginning of a new one to move twice the amount of money quickly.
2. Tax emigration – changes the rules for transferring money out of South Africa
The Single Discretionary Allowance and Foreign Investment Allowance are available to tax residents only. If you’ve officially tax-emigrated from South Africa, you can no longer use the SDA or FIA to transfer your money abroad. These allowances are no longer available once you’ve severed your tax ties with the country. When repatriating money from South Africa, you must apply for the SARS Approval – International Transfer.
- In the year you complete tax emigration, you will have access to a once-off travel allowance of R1 million without needing prior tax clearance.
- This allowance is meant to help you repatriate your money from South Africa and can only be used once.
Read more: SARS AIT: What to expect when transferring proceeds from South Africa.
3. Know your limits when transferring money out of South Africa – the SDA and FIA values
- Single Discretionary Allowance (SDA): R1 million per calendar year per adult, while minors have a limit of R200 000 each.
- Foreign Investment Allowance (FIA): R10 million per calendar year per adult.
How much money can you transfer out of South Africa? If you are a South African tax resident, you can move up to R11 million annually out of the country by combining both allowances.
What happens if you need to transfer more than the Single Discretionary Allowance and Foreign Investment Allowance? Suppose your intended foreign transfer exceeds the combined limits of the Single Discretionary Allowance (R1 million) and the Foreign Investment Allowance (R10 million). In that case, you’ll need to seek special approval from the South African Reserve Bank (SARB). This process involves rigorous scrutiny by both the SARB and SARS. They will assess your:
- Tax compliance: Your tax history will be examined to ensure you’re in good standing.
- Source of funds: The origin of the funds you intend to transfer will be verified to confirm their legitimacy.
- Risk assessment: Your transaction will be evaluated against anti-money laundering and counter-terrorism financing regulations, as outlined in the Financial Intelligence Centre Act of 2001.
Essentially, authorities will closely examine your financial affairs to ensure your funds are clean and have been acquired legally.
4. Single Discretionary Allowance is all about simplicity – no extra red tape from SARS
One of the best things about using the SDA for international money transfers from South Africa is its simplicity. Unlike the FIA, which requires tax clearance and extra paperwork, the SDA is hassle-free, and you can use it without any additional approvals from SARS. All you need is your green ID book or smart ID card. The Authorised Dealer handling your international transfer requires proof of identity to comply with FinSurv Reporting requirements.
5. Credit card spending adds up – the hidden drain on your Single Discretionary Allowance
One overlooked aspect of the Single Discretionary Allowance (SDA) is how everyday international credit card transactions can quickly eat into your annual limit. Whenever you use your credit card for foreign purchases, regardless of the amount, it’s counted towards your R1 million annual allowance.
This includes everyday expenses, travel costs and online shopping from websites like Amazon or eBay.
To avoid inadvertently exceeding your SDA, keeping track of all spending and foreign credit card transactions is essential. It’s also wise to plan and budget your international spending to stay within your allowance. You could also consider alternative payment methods and explore options like foreign currency cards or cash payments to minimise the impact on your SDA. By being mindful of your credit card usage, you can effectively manage your Single Discretionary Allowance and optimise your foreign spending.
6. Double your transfer power by leveraging your spouse’s allowance
If you and your spouse/life partner are still South African tax residents, you can combine your SDA allowances to transfer more than R1 million offshore in a year with minimal fuss. This strategy can be beneficial for more significant foreign investments or property purchases. If you have children under 18, you can also use their R200 000 SDA allowance per child to move more.
FinGlobal: cross-border financial specialists for expats
International money transfers from South Africa can be daunting, especially when dealing with the intricacies of exchange control and tax compliance regulations. SARS imposes strict guidelines, and the process can be time-consuming and frustrating.
FinGlobal’s team of experts is here to streamline your international transfer process. We’ll handle your SARS Application for International Transfer (AIT) from start to finish, ensuring a smooth and efficient experience.
Ready to simplify your international transfer? Contact us today to learn more about our cross-border financial solutions tailored for South Africans. We’ll happily answer any questions and provide a customised solution.