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CLARIFICATION ON TAX CLEARANCE APPLICATIONS FOR FOREIGN INVESTMENT PURPOSES

Kevin O'Neil

In the February Budget Review, National Treasury indicated that as from 1 April 2015 a South African resident’s (individuals only) foreign capital allowance would increase from R4 million to R10 million per calendar year.

In order to take funds offshore, individuals would have to obtain a foreign tax clearance certificate from SARS before they could transfer the funds offshore.

Prior to the announcement, applications for R4 million or less would generally be approved within two to seven working days (provided the individual taxpayer was fully tax compliant i.e. all returns were up to date and no amounts were outstanding). If so, the taxpayer could then collect the certificate from a SARS branch. For applications in excess of R4 million the process was more rigorous, as SARS would conduct a tax audit, resulting in a compliance letter only being emailed to the applicant several months after the request was submitted.

With the announcement of the increase in the foreign capital allowance , there was an expectation that tax audits would now only be conducted if the application was for R10 million or more, and that the turnaround time of two to seven working days would apply to applications up to R10 million.

All applications submitted after 1 April 2015 in excess of R4 million have however been subject to tax audits and have not been approved within two to seven working day turnaround time, resulting in huge frustration for both taxpayers and tax practitioners alike. Initially it was believed that this was a temporary error, as SARS had not updated their systems accordingly.

This view has since been proved incorrect as SARS recently sent out a notice to tax practitioners clarifying their stance regarding the applications for tax clearances to expatriate funds for foreign investment purposes. In the notice, SARS stated its obligation to ensure that taxpayers are fully tax compliant before approving a clearance for the funds to be expatriated. There was also emphasis placed on the fact that all applications, irrespective of the amount, will be subject to a risk evaluation, and that SARS will continue to apply processes which best deal with the risks related to these applications.

Herewith a clarification of the process:

  • SARS evaluates all applications for foreign investment purposes, regardless of the amount involved in terms of a standard internal operating process.
  • In this process, SARS applies various risk rules to ensure that taxpayers are fully compliant. The risk rules applied during this process are not dependant on the threshold set for exchange control purposes.
  • All applications, irrespective of the amount involved, must be completed on a FIA001 form which must be submitted to a SARS branch.
  • For cases up to R4 million, a tax clearance certificate (TCC) is issued and printed when it is approved. These TCC’s are collected at a SARS branch.
  • Similarly, for cases above R4 million, once approved, a TCC is also issued by way of a Letter of Compliance by SARS Case Selection Division and is sent by email to the taxpayer.

 
From the above, it is clear that SARS will not be updating its system. It is therefore imperative that with all applications, due care is given to the timeframe involved and that all required information is provided, as any error could delay the process further.