The greylisting of South Africa by the Financial Action Task Force (FATF), due to concerns about the country's anti-money laundering efforts, has had significant consequences for individuals and businesses operating within South Africa. One of the key impacts of greylisting is the increased scrutiny of cross-border financial transactions, particularly with the remittance of funds out of the country.

In order to address these concerns and align with international standards, Sars implemented the “Approval International Transfer” or “AIT” Tax Compliance Status (TCS) process. This process requires that relevant individuals obtain approval from Sars before remitting funds out of South Africa. Failure to obtain this approval can result in penalties, fines, and even imprisonment. 

Why the sudden change…

The greylisting comes as an indication of South Africa’s deficiencies in certain policies and frameworks and further that there would need to be collaboration with FATF to remedy these deficiencies. 

By introducing the new approval process, Sars is demonstrating a commitment to preventing financial crime. The AIT process potentially reduces the risk of the more detrimental blacklisting, which follows from failure to cooperate.

Greylisting and its Consequences 

The AIT process, introduced as an exchange control measure, comes as a culmination of South Africa’s greylisting and historic failure to meet international standards. Its impact extends beyond individuals and may even affect businesses.

Individuals and businesses involved in cross-border transactions, including property transactions with foreign investors, will be held to stringent exchange control requirements for clearance. These requirements will include the accurate completion of the AIT process, where required, to legitimise the transfer of funds in each case. 

While the new Sars AIT process may require additional documentation and time, it is crucial for individuals and businesses to adhere to all requirements. Compliance with the Sars AIT process not only avoids penalties but also demonstrates South Africa's commitment to combating financial crime and reducing the risk of future greylisting, or potential blacklisting further down the line.

Distinction between Residents and Non-Residents

Introducing a further game-changing element to the remittance process is a clear distinction between residents and non-residents. For individuals who seek to transfer funds abroad, it's essential to confirm their residency status. 

The Sars AIT process applies to all cross-border transfers of capital for tax non-residents, regardless of the amount involved. This means that even small transactions, such as sending money to family members or transferring encashed retirement fund interests abroad, would require Sars approval before the funds can be remitted out of the country. 

For tax residents, this is a requirement on any funds remitted above the annual single discretionary allowance, which is currently R1-million per annum per taxpayer.

To obtain Sars AIT approval, the sender must provide detailed information about the transaction, including the purpose of the remittance, the identity of the recipient, and the source of the funds to be 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), using the MP336(b) form, will need to provide a Non-Resident Confirmation Letter from Sars. It is crucial not to erroneously apply as a tax resident if a prior declaration of non-residency has been made to Sars. 

It’s important to reiterate that failure to obtain Sars AIT approval before remitting funds of South Africa, where required, can result in significant consequences. Without a comprehensive roadmap, detailing what you need to get over the line, you may find yourself unable to move your funds out of the country. 

Impact on Various Sectors

The Sars AIT impact on businesses is not just limited to the banking sector. Various business sector including property, financial services, and legal services, are also impacted by the Sars AIT approval rules, particularly those that rely on trade with foreign entities and associated cross-border transactions. Most evidently, in the property sector, transactions involving foreign investors may require approval from Sars before money can be remitted out of South Africa.

Additionally, in accordance with the regulations set by the South African Reserve Bank (SARB), banks are required to enforce Balance of Payments (BoP) requirements when facilitating cross-border transactions. BoP requirements ensure the legitimacy and compliance of these financial transactions to prevent illicit activities such as money laundering and terrorist financing.

SARB's Efforts to Align with Greylisting Requirements

Sars’ alignment with international standards has prompted SARB, in practice, to become far more stringent in implementing the BoP requirements. This may feed into the additional administration and precautionary requirements that follow from SA’s greylisting status.

The introduction of the Sars AIT process and adherence to BoP requirements are essential for maintaining the integrity of cross-border transactions and ensuring South Africa's compliance with international anti-money laundering and counter-terrorism financing measures. 

All these changes have created grey areas which make remitting funds more complex. By working with financial emigration experts, who can assist in developing a comprehensive roadmap that details what you need to correctly remit your funds abroad, the grey is all but eliminated. 

Written by Victoria Lancefield, Director of Expatriate Tax and Banking Engagement at Africorp Treasury; and Khutso Mokoena, Legal Consultant: Expatriate Tax at Financial Emigration

Submitted by Tax Consulting SA