IS SARS SCRAPPING THE R10M ANNUAL FOREIGN INVESTMENT ALLOWANCE?

A recent article following an investment conference states: “Exchange Control shock: SA Treasury in the silent but violent move – just as (the author) warned!”. The closing conclusion in the article refers to “the effective scrapping of the R10 million investment allowance…”

The above statement is both misleading and plain rubbish.

Firstly, there is no intention to scrap the R10 million foreign investment allowance. Every individual over the age of 18 who is in good standing as far as their taxes are concerned can apply and upon approval move R10 million offshore per year without any restrictions.

Add the R1 million discretionary amount that does not need approval, and every taxpayer can still move R11 million offshore every year. Once the funds have been cleared you can do with them as you please – except of course engage in the financing of terrorism and money laundering which are major drivers of why changes are taking place in the regulations for moving funds worldwide.

So, what happened to lead to such comments?

To start with, I have mentioned in the past that publishing articles that stir emotions gains readership. People are for some strange reason attracted to bad news, war and murder. Where these types of news flashes appear as “top” articles or on the front pages of reports and magazines sales spike. It, therefore, pays to get people upset. If your business model speaks to the emotions of people, what better way to attract them to follow your advice than by twisting facts?

Let us look at the facts and at this “terrible thing” that Sars and National Treasury have so unexpectedly sprung upon us.

Exchange control regulations and anything to do with the transportability of money is getting stricter across the globe. With more focus on anti-terrorism, drug trafficking and money laundering, it is going to get more difficult to transact on a global basis. Acts like Foreign Account Tax Compliance Act (FATCA) introduced by the US (if you think our little change is bad, try living in the US and investing elsewhere…) and our local Anti-Terrorism Act and many more across the globe place much emphasis on determining where funds originate from. Ask any South African with a foreign bank account how the hurdles are getting higher when trying to transact with foreign banks that hold their funds.

This is not a South African-specific trend. And no, it is not the SA government trying to get their grubby little paws on your money. It is global and it’s real!

So, what prompted the move and what does the change entail?

The Financial Action Task Force (FATF) recently placed SA on the “grey list” which means various deficiencies were found in our anti-money laundering and terrorism financing policies and systems. If these deficiencies are not addressed and they worsen, SA will move to the “blacklist” which means global sanctions will be introduced against us.

To improve our grey-list status various bills have been approved and the amendments will focus on the following:

• The Financial Intelligence Act

• The Non-profit Organisations Act

• The Trust Property Act

• The Companies Act

• The Financial Sector Regulations Act

• The Protection of Constitutional Democracy Against Terrorist and Related Activities Act

Each one of the above-mentioned acts will be impacted and hold implications for every person who is linked to the respective sector. I strongly suggest that every individual who is a trustee, a beneficiary, a founder of a trust, a director of a company etc. etc. familiarise themselves with what they are required to do in terms of reporting and their obligations.

One of the major areas that need to be “policed” more is the movement of money, hence the requirement to establish the source of funds when investing and buying foreign assets. It is also the intent of Sars and Treasury to modernise systems and become part of the global financial system even more hence the recent changes. Crypto for one, is unregulated and a major suspect for illegal transactions, money laundering and financing terrorism. I expect crypto to become much more regulated than it is and should that happen, who knows what will happen to their values…

For SA to flourish and attract foreign investors, exchange controls must be relaxed and not restricted. It is my belief (and that of many), that eventually exchange control will be abolished as far as the movement of money is concerned as long as it’s legitimate and legal money.

There will always be the very necessary steps in regulation to make sure that this is the case and I truly do not have a problem with that.

So, what changes are causing the whining?

• For all funds leaving SA the original source of the funds must be identified and proven. That applies to the R10 million investment allowance as well as to individuals who wish to financially emigrate. What’s wrong with that? Unless you have something to hide of course…

• Sars now requires proof of taxpayers’ worldwide assets. Since 2001, SA has had a residence-based tax system that takes an individual’s global income into consideration. This includes income derived from foreign assets. So, nothing new here. Unless you didn’t declare it previously…

• Sars requires global asset values at cost. Since financially emigrating triggers capital gains tax, this will of course be a requirement and has been a requirement for people emigrating in the past. SA has double taxation treaties with most countries so double taxation will not apply.

• The regulations have nothing to do with “stemming the massive outflows of capital” as alluded to in the article. It will only stem the outflow of illegal funds…

• In 1995 institutional investors were allowed to invest 15% offshore. Today it’s much higher. Don’t confuse Regulation 28 with the limits of institutional investors. In 1997 individual investors were allowed to invest R400 000 offshore in total, today it is R11 million per year per individual. Does this look like trying to “stem outflows”? Of course, the government is concerned about the major outflows and so they should be. Perhaps if they fix Eskom as a start the tide may turn…

• One pin, the AIT (Approval International Transfer) makes sense. It’s simpler and cleaner. What is the problem with that? It also conforms to modern international standards and trends and allows SA to be part of the larger global monetary community. The AIT can be accessed via e-filing and is user-friendly albeit more detailed.

• New requirements like supporting documents showing sources of capital, statement of assets and liabilities, proof of cessation tax residency, and CGT calculation should not be a problem at all since all this information is required for your annual tax submissions anyway. Once again, what is the problem?

Yes, the changes were sudden. Yes, South Africa is in a sorry state. Yes, our government can and should do much better. Yes, everyone should be investing offshore. But let’s keep it real. The changes are for the good and anything that is done to reduce corruption, money laundering and all the other bad things I will support.

Don’t get hyped up by rubbish. Get all the facts before you fall into the trap of misguided nonsense and selective reporting.

Happy investing!