South Africans who have taken the leap to finalise their cessation of tax residency often overlook the banking regulations and financial consequences that may follow. Understanding these concepts is crucial to ensuring that you remain fully compliant as a non-resident taxpayer and will help you avoid setbacks when engaging with the financial institutions and moving funds abroad.

The South African Reserve Bank (SARB) through various banking and financial institutions also maintain records of residency for all South African banking customers. This is for the purpose of their financial surveillance control and compliance. This has recently been further heightened by South Africa’s greylisting status.

Understanding Account Conversions

It must be understood that when your tax residency status changes it is required that your banking status is also updated to match your tax residency status. Where one ceases to be a tax resident of South Africa, their banking status must be updated, and their bank accounts converted to non-resident status.

Previously the accounts were converted to ‘Blocked Capital Accounts’, this caused confusion and gave a perception that the accounts will be completely blocked with no access. For clarity, a capital account was the term used for the remaining bank accounts for South African non-residents who emigrated (the old regime) through the South African Reserve Bank (SARB). As of 1st March 2021, this process no longer exists as the new regulations dictate that cessation of tax residency with SARS is now to be strictly followed. Under the new system, these bank accounts are now converted to non-tax resident accounts. SARB therefore no longer plays an active role in the process of the conversion of bank accounts for non-residents.

Non-Tax Resident Bank Accounts Compliance

The onus remains with the non-resident account holder to notify their respective banking institution of their tax residency status change. This will enable the banking institutions to correctly classify transactions on transfer approvals and for their monthly recon reports to SARB. Non-compliance could lead to several implications, including having your bank account frozen by your bank. Furthermore, your bank may also place a “spend block” on your account which will prevent you from transacting through the account.  This can only be lifted or remedied once your account has been converted to match your tax status. Where funds have been transferred abroad using the non-compliant account, SARB could request that such funds be returned to South Africa and transferred abroad only once the account has been converted.

Funding and Maintaining Non-Tax Resident Bank Accounts

Typically, non-tax resident accounts cannot be funded by resident sources, i.e., gifts, cash Rand deposits or EFTs. These accounts can be funded by local Rand funds from capital assets (declared remaining SA assets) and funds from abroad. Capital assets are the remaining assets, which are South African sourced, that were declared to SARS at the time of formalising cessation of tax residency. Under all circumstances, the banks will require documents confirming proof of source of the funds before crediting them into the account. Miscellaneous local Rand funds such as refunds, inheritance may be received into the accounts but also still subject to confirmation and proof of their source.

Credit Facilities

Non-tax resident bank account holders are not allowed credit facilities such as credit cards and overdrafts. Facilities such as personal and home loans are subject to SARB approval. For home loans, the 1:1 ratio applies, i.e. for every R1 in cash or assets that a non-tax resident introduces or owns locally, such non-resident may borrow an equivalent amount from the local financial institutions.

Local Assets Proceeds

It is essential to understand that to receive proceeds from your remaining local assets you will require a local bank account. Assets such as policies will strictly require a non-resident bank account in your personal name and cannot be paid into 3rd party bank accounts. Proceeds such as inheritance and distribution from Trusts may be transferred directly abroad from the Estate or Trust account. The onus of compliance will then rest with the Estate or Trust.

Offshore Transfers

Transfer of capital funds abroad will always require an Approval International Transfer (AIT) Tax Compliance Status (TCS) PIN from SARS. This is a ‘clearance’ issued by SARS as approval for transfer of funds abroad. On the other hand, income funds will require a Good Standing TCS PIN from SARS. This is for the purposes of verification of tax compliance before transfer is authorised. It should be noted that non-tax residents do not have the R1-million Single Discretionary Allowance (SDA) available to them. This is only available to tax residents. 

A common misconception amongst SA expats is that non-residents may only transfer up to R1-million a year. Expats seem to mistake this with the SDA available to residents and must understand that they are not limited to any amount when transferring funds abroad. 

Stringent Checks

For transfers over R10-million in addition to an AIT TCS PIN from SARS, there will be a subsequent SARB Financial Surveillance Department approval required before the funds can be transferred abroad by your bank. These kinds of transfers would normally trigger a Risk Management Test which would include verification of your tax status, source of funds, and risk assessment in terms of the anti-money laundering and countering terror financing requirements. It is imperative to consider these in your tax planning when you formally emigrate and cease tax residency. Guidance and assistance by a professional who understands these complexities will always be essential.

Written by Lovemore Ndlovu, Head of SARB Engagement and Expatriate Compliance at Tax Consulting SA