Read the article in Afrikaans here: Oorplasing van fondse na die buiteland deur nie-inwoner belastingbetalers

Individuals who have ceased to be South African tax residents often retain assets, investments or other interests in South Africa. The subsequent sale of these assets, receipt of inheritances or distributions from South African trusts may result in funds becoming available for remittance abroad.

The remittance of these funds generally requires approval from the South African Revenue Service (SARS) and, where more than R10 million is to be transferred, may also require approval from the Financial Surveillance Department of the South African Reserve Bank (FinSurv).

Unlike South African tax residents, non-residents do not have a discretionary allowance under which funds may be transferred offshore without tax-compliance approval. The process to be followed depends primarily on whether the non-resident remains registered with SARS, the source of the funds and the amount to be transferred.

Approval for International Transfer (AIT)

A non-resident who remains registered with SARS generally obtains approval to remit funds abroad by submitting an Approval for International Transfer (AIT) application through the Tax Compliance Status functionality on eFiling.

An AIT application requires more than confirmation that the taxpayer’s returns and payments are up to date. SARS requires detailed disclosure regarding the taxpayer’s assets and liabilities and, importantly, supporting documentation establishing the source of the funds to be transferred.

The general supporting documentation includes evidence supporting the source of the capital and a statement of assets and liabilities for the preceding three tax years, including investments, loan accounts and distributions from local and foreign companies and trusts.

As a non-resident, the applicant must additionally provide evidence confirming that they have ceased to be resident for South African tax purposes and the date on which tax residency ceased. A detailed capital gains tax calculation relating to the deemed disposal of assets upon cessation of South African tax residency is also required, where applicable.

The precise supporting documents will depend on the source of the funds. An AIT application should therefore be approached as a source-of-funds substantiation exercise and a tax-compliance application, with a clear documentary trail from the underlying source of the capital to the amount ultimately available for remittance.

Trust distributions to non-resident beneficiaries

Trust distributions require particular attention where the beneficiary has ceased to be a South African tax resident.

With effect from 1 March 2025, the flow-through principle contained in section 25B of the Income Tax Act is limited to resident beneficiaries. Accordingly, income vested in or distributed to a non-resident beneficiary is taxable in the hands of the South African trust. The income must therefore first be taxed in the trust, whereafter accumulated trust capital may be distributed to a non-resident capital beneficiary, subject to the trust deed and applicable tax requirements.

This distinction is particularly important when funds are subsequently remitted abroad. SARS requires specific supporting documentation for trust distributions, and the trustees should be able to demonstrate the nature and source of the distribution, how the accumulated trust capital arose, and that the relevant South African tax liabilities have been or will be settled.

The tax consequences and supporting documentation should therefore be considered before the distribution is made, rather than only when the non-resident beneficiary subsequently wishes to remit the funds abroad.

Manual Letter of Compliance

A different process applies where a non-resident is no longer registered on the SARS taxpayer database and is consequently unable to submit an AIT application through eFiling.

Where SARS approval is required, the non-resident must apply directly to SARS for a Manual Letter of Compliance (MLC) – Transfer of Funds. Among other requirements, the applicant must provide evidence confirming their non-resident status or residence abroad, together with documentation supporting the source and amount of the funds to be transferred.

For non-resident beneficiaries who are no longer registered on the SARS taxpayer database, SARS specifically requires an MLC for the remittance of a distribution received from a South African trust, irrespective of the amount distributed.

There are limited exceptions to the general MLC requirement. Where a non-resident who is no longer active on the SARS database receives an inheritance or qualifying life-insurance policy payment not exceeding R10 million, an MLC is not required. Where such an amount exceeds R10 million, an MLC is required.

Remittances exceeding R10 million

An additional regulatory requirement arises where a non-resident wishes to remit more than R10 million abroad. Obtaining the necessary SARS approval does not conclude the process. Following the AIT or MLC approval, as applicable, the proposed transfer is also subject to approval by FinSurv. The application is submitted through an Authorised Dealer, generally the South African bank facilitating the transfer, rather than directly by the taxpayer.

There are therefore two approval stages for these larger remittances. The taxpayer first obtains the appropriate SARS approval through an AIT application or MLC. Thereafter, the Authorised Dealer submits the proposed transfer to FinSurv, with the SARS approval forming part of the supporting documentation.

Accordingly, SARS approval of a remittance exceeding R10 million is not, on its own, sufficient for the funds to be transferred abroad. The additional FinSurv approval must also be obtained.

Planning the remittance

The remittance of funds by non-residents can become particularly complex where the funds arise from older investments, the disposal of South African assets or distributions from South African trusts. Delays frequently arise where the documentation required to establish the source and tax treatment of the funds is incomplete or does not reconcile with information previously disclosed to SARS.

This is particularly important for trust distributions to non-resident beneficiaries. Trustees should consider the South African tax consequences before making the distribution and retain sufficient documentation to demonstrate the source and capital nature of the amount ultimately distributed.

Non-residents contemplating a substantial remittance should similarly ensure that their tax-residency status has been correctly recorded with SARS, that any outstanding South African tax obligations have been addressed and that sufficient documentation is available to establish the source of the funds.

Where the remittance exceeds R10 million, the Authorised Dealer should also be engaged sufficiently early to establish the requirements for the subsequent FinSurv application.

Careful planning of the underlying transaction and preparation of the AIT or MLC application can significantly reduce the risk of delays when funds are ultimately remitted abroad.