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11 min read

AIT: the implications of non-compliance

In our previous article, we discussed some of the issues South Africans face in confirming their Tax Compliance Status (TCS) via the new AIT application process on eFiling. 

It’s important to understand not only why the new process is so complex, but also what the implications are should individuals renege in their responsibility to confirm said status with SARS. 

Planning for the future

The AIT process is inconvenient for all who need to complete the process but far more complicated for South Africans living and working abroad. 

The two groups affected by the new protocol are those who want to complete their tax emigration and confirm their status as non-residents for tax purposes as well as those who wish to utilise their foreign investment allowance (FIA - also known as foreign capital allowance) of up to R10-million per annum to invest offshore. 

Whether individuals consider themselves part of either group - putting things off can trigger aftershocks for years to come.

Claiming ignorance is no excuse

Many South Africans assume that that they can hold off on any crucial decisions - whether it is because they aren’t sure whether they want to cut ties with SARS, or if they don’t have immediate plans for using their FIAs. And yet - ensuring tax compliance with South African and foreign tax regulators should be top-of-mind and completed for each tax season as the repercussions could be devastating. 

Delaying AIT could restrict virtual recourses

Should tax compliance not have been obtained for the years preceding eventual AIT application, this could trigger audits, require information updates and/or incur penalties due to SARS. It’s not merely a matter of whether or not you consider yourself liable for taxes in SA, nor how sizeable any penalties may be - the recourses and resources available to remedy any results are limited for those who don’t have access to SARS branches. 

The new system doesn’t allow querying or even making payments for all charges via the online system which could protract tax clearance for those living abroad and make it even more difficult to confirm their tax compliance. An additional conundrum is the fact that governments, banks, investment houses, employers and funds have various ‘filing seasons’, deadlines, waiting-periods or protocols which don’t necessarily overlap. Obtaining or verifying the necessary information for each jurisdiction or organisation which provides SARS with the complete picture of one’s financial affairs requires significant planning and juggling. 

Automatic exchange of information

Individuals shouldn’t assume that foreign banks, service providers, agents, or bureaus aren’t aware of the requirement for tax compliance imposed by SARS. With the automatic exchange of information (AEOI) and financial surveillance of each agency now well-established worldwide, tax and asset portfolios are shared between all accredited providers, governments, and regulatory bodies across borders as a rule.  

Taxation of worldwide income

The three-year rule which came into effect on 21 March 2021 requires that all South Africans who wish to confirm their status as foreign taxpayers inform SARS of this status (or intent) on or before the date of leaving South Africa and retain this status for a full three years before their non-resident for tax purposes status is confirmed retroactively. 

Some South Africans who move abroad don’t consider it necessary to inform SARS of their non-resident tax status and assume their tax residency will automatically cease or cede over time. This may very well hold true for individuals who emigrated years ago - or those with no assets left in SA, but there’s a rather sizeable catch.

The greatest issue with this thinking is that they will be considered South African residents for tax purposes until they initiate the tax emigration process - which means they are liable for tax to SARS on their worldwide income. Such liability can only be avoided by either formalising their tax emigration or applying for a double taxation directive  - which will also require TCS confirmation.

Tax emigration and the three-year rule 

One of the primary reasons for initiating tax emigration is to access the proceeds of retirement savings and transfer these funds abroad.

In previous years financial emigration was undertaken by those who wished to access their retirement annuities before retirement age (55) since such funds were essentially ‘locked down’ for all South African resident taxpayers (barring a once-off/partial withdrawal to a certain cap). The new regulations have redefined retirement savings by bundling the various retirement vehicles into one under the Binding General Ruling (Income Tax) 58

Complications for immigration and citizenship

While not the most crucial concern for those who need to complete the AIT process, a peripheral matter that could have a dramatic impact on their lives is local vetting in their new countries. 

AIT protocols will most definitely place South African emigrants on the radar of local authorities, and yet such scrutiny will only be amplified through non-compliance. 

Post-emigration change in economic status

Consider a scenario where a family group emigrated abroad with a single ‘breadwinner’ deemed the primary/only individual subject to tax filing (whether in SA or abroad). Should one of the adult dependants (whether spouse, child, partner or parent) become economically active and start earning an income before or during the tax emigration period they could be liable for completing their own AIT application. They may even be required to complete the process if only to confirm that they aren’t liable for any taxes. 

Local government scrutiny: the flip-side of the coin

Although it may be beneficial to assure SARS that members of a family group aren’t liable for taxes, this could hamper immigration, residency, and citizenship approval locally. 

One of the most pivotal considerations for government agencies in the granting of visas, residency permits and permanent citizenship is whether each individual will play a responsible and progressive role in their society.

Immigration is not a straight-forward process. It’s riddled with unforeseen hurdles or changes in professional or personal circumstances. Children become of age, people are retrenched/, choose different career paths, move to different locations, temporary or permanent illness/disability may strike, or a choice may be made for a spouse to sacrifice their career in favour of home-making. 

Should such information not be relayed to authorities overseeing immigration, a TCS which confirms that they are not economically active in their new home may have devastating consequences for the family as a whole or individual members. This could hamper the entire family or individual member’s hopes of establishing a new life abroad. 

Let Rand Rescue help you out

Rand Rescue is well-versed in the regulatory speak of various governmental entities - we understand the intricacies of cross-border transacting, commutation, surrender, and exchange as well as the requirements, penalties, taxation, or relief applicable to each process or procedure. 

Don’t get stuck in red tape and risk your own and your family’s economic freedom - let the experts help. 

The information provided on this website is intended for general informational purposes only. It is not a substitute for professional advice, whether financial, legal, or otherwise. Before making any decisions or taking any actions based on the information provided on this site, we strongly recommend consulting with qualified professionals who can assess your specific circumstances and provide tailored guidance.

Peter is an investment professional with over 30 years’ experience in banking and financial services. He has extensive knowledge in local and offshore investments, income tax and finance. He held senior positions in banking in South Africa before leaving the corporate world to venture on his own over 20 years ago. Peter has business interests in South Africa, New Zealand, and the United Kingdom. He and Jessica founded JP Blue Capital South Africa in 2014. Rand Rescue and Rand Reunite New Zealand are subsidiaries of JP Blue Capital in South Africa. Peter holds a B Comm Accounting degree from the University of Port Elizabeth, is a Fellow of the Chartered Institute of Business Management and is an Associate member of the Chartered Governance Institute of South Africa. Peter brings extensive management and financial experience to the Rand Group from various sectors of the economy and currently fulfils the role of Financial Director of the Rand Group. Peter is married to Janine and have 3 adult children and 3 four legged kids, who apparently are the favorite children. They reside in Johannesburg, South Africa but regularly travel to visit two of their children that live in London.