Global Courant
South Africa’s graylisting has had unforeseen knock-on effects on tax law implementation processes.
Tax experts at Tax Consulting SA said that due to concerns about the country’s anti-money laundering efforts, the greylisting has increased scrutiny on cross-border transactions, particularly those where money leaves South Africa.
South Africa was added to the Financial Action Task Force (FATF) global gray list on February 24, 2023, but was widely expected to do so. The FATF discovered loopholes that sought to eliminate money laundering and terrorist financing.
To try to escape the gray list that has made doing business with international companies more difficult, SARS stepped in and implemented the “Approval International Transfer” or “AIT” Tax Compliance Status (TCS) process.
According to Tax Consulting SA, this process requires relevant individuals to obtain SARS approval before transferring money from South Africa, and failure to obtain this approval could result in penalties, fines and even imprisonment.
“By introducing the new approval process, SARS demonstrates its commitment to preventing financial crime. The AIT process may reduce the risk of the more damaging blacklist that results from non-cooperation,” the tax consultancy said.
AIT process
The impact of the new processes extends beyond individuals and can even affect companies.
Individuals and companies involved in cross-border transactions, including real estate transactions with foreign investors, will be subject to strict exchange control requirements for approval.
“These requirements include the accurate completion of the AIT process, where necessary, to legitimize the transfer of funds in each case,” said Tax Consulting SA.
Under the new process, an AIT requires the submission of the following documents:
Relevant material showing the source of the capital to be invested. A statement of assets and liabilities for the previous three tax years, including the disclosure of all investments, loan accounts, and distributions from local and foreign corporations, trusts, etc. If the application for taxpayer status was filed by someone other than the taxpayer, the relevant power of attorney must be submitted.
The full guide can be found here:
Residents versus non-residents
Tax Consulting SA said those wishing to transfer money abroad must confirm their residency status.
The process applies to all cross-border capital transfers for non-residents for tax purposes, regardless of the size of the transaction.
This means that even small transactions, such as sending money to family members or transferring pension fund interests abroad, require SARS approval before the money can be sent out of the country.
To obtain SARS AIT approval, the sender must provide detailed information about the transaction, including the purpose of the transfer, the identity of the recipient, and the source of the money being transferred.
SARS will then review this information and may request additional documentation or information before granting approval.
“A noteworthy point to remember is that individuals who have already gone through the financial emigration process with SARB and their authorized dealer (their bank) must provide, using the MP336(b) form, a non-resident confirmation letter from SARS,” says Tax Consulting SA.
“It is critical not to falsely apply as a tax resident if a prior declaration of non-residency has been made to SARS,” said Tax Consulting SA.
Impact on different sectors
The impact of SARS AIT on businesses is not just limited to the banking sector. Several business sectors, including real estate, financial services, banking and legal services, are affected by AIT approval rules.
Especially those that rely on trade with foreign entities and associated cross-border transactions. Clearly, in the real estate sector, transactions involving foreign investors may require SARS approval before money can be transferred out of South Africa.
Banks in South Africa are now mandated by the South African Reserve Bank (SARB) to enforce balance of payments requirements (BoP) for cross-border transactions – as another level of protection against financial crimes.
The alignment of SARS with international standards has meant that in practice the SARB has become much stricter in implementing BoP requirements, says Tax Consulting SA.
This may add to the additional administrative and precautionary requirements arising from SA’s greylisted status.
The introduction of the SARS AIT process and compliance with BoP requirements are essential to maintaining the integrity of cross-border transactions and ensuring South Africa’s compliance with international anti-money laundering and financing of terrorism, according to the tax experts.
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