More flexibility does not mean fewer rules. Authorized dealers remain responsible for verifying the source of funds, the validity of the transfer, and compliance with applicable exchange control and tax requirements. How the money is held, when it is moved and what the tax consequences may be are also important considerations.
Without a well-thought-out structure, offshore assets can present significant estate planning complexities. On death, directly held offshore investments may be subject to foreign probate rules, potential status (inheritance) taxes and delays in the efficient transfer of assets to beneficiaries.
South African tax residents are taxed on their worldwide income. Foreign income from offshore investments must be properly declared and taxed in South Africa where applicable. Failure to properly account for foreign income can result in significant and often unexpected tax liabilities.
Funding offshore transfers may also affect South African tax consequences. Depending on the source and structure, the transaction may give rise to capital gains tax, donation tax, dividend tax, or other tax implications. Hence there is a need to exercise caution before sending money out, especially where the asset is first sold or transferred.
Timing and execution are important. The exchange rate used on the day the instruction is processed may be different from the rate when the funds are ultimately transferred. This difference can be significant on large transfers.
It is important to note that transfers made in many institutions are aggregated for the purposes of annual allowance. In practice, everyday transactions such as card spending abroad, online foreign exchange purchases and small remittances all use the same annual capacity. As a result, individuals may inadvertently exceed their allowances at different institutions within the same year, resulting in transfers being put on hold pending necessary approvals, and avoidable delays.
Transfers that require SARS AIT clearance involve a detailed supporting documentation process. This involves submitting recent bank statements (not older than 14 days), evidence relating to the specific source and movement of funds as well as a comprehensive statement of local and foreign assets and liabilities covering the last three years.