For non-residents with money or income in South Africa, and for South African residents transferring money abroad, a routine transfer can take months because of complicated SARS requirements. A pensioner in the UK, living off a monthly South African pension payout, logs in one day to move her funds. Her bank messages her saying that her transfer has been blocked because it believes she now needs SARS approval for international transfer (AIT) – but it’s not correct.
The Institute for International Tax and Finance sees this confusion regularly, and it led to the development of Clara, a free AI-powered assistant designed to help South Africans living abroad and non-residents. It also supports the advisors and banks who serve them.
More complexity
For South African tax resident individuals, the rule is relatively simple: if you transfer more than R2 million a year, you likely need an AIT. For non-residents, it’s much more complex. Whether you need an AIT depends on the source of the funds. Is it capital or income? Income categories such as dividends, rental income, directors’ fees, and salaries trigger different requirements and supporting documentation.
“The rules around exchange control requirements and when AITs are needed are very complicated for non-residents, their advisors and banks, and they’ve become more complicated with changes by the Reserve Bank,” says Michael Kransdorff, director of the Institute for International Tax and Finance.
Many also fall into a grey zone where the rules are unclear: they’ve left South Africa and are living abroad but haven’t formally gone through the SARS process to cease tax residency. So what happens if you have left behind a rental property, an unclaimed pension or retirement annuity, savings in a South African bank account, or a house still on the market?
Complex rules and cautious banks
“We find that non-resident clients often have an extraordinarily difficult time with banks, because the rules have become so complex that the banks don’t always get it right themselves,” says Kransdorff. “For instance, regular pension payments don’t require an AIT with the correct supporting documentation. But we regularly see clients told otherwise, which can create a lot of anxiety for those living abroad who can’t access their own money.”
When an AIT is required, the process is slow. SARS has up to 21 business days to process an application, but in practice, further verifications and additional document requests can stretch it out. This leaves people without access to their own funds for weeks or months. For someone trying to fund a deposit on a home abroad or capitalise on favourable exchange rates, that delay can mean missed opportunities.
Clara AI can help
Turning to general AI platforms for answers to complex tax questions is problematic because they draw on online information that can be inaccurate or outdated. Clara, on the other hand, is an independent tool developed and tested by the Institute for International Tax and Finance using the SARB Currency and Exchanges Manual, SARS guidance and current South African tax legislation.
Clara, (Clearance Advisor for Rands Abroad) asks a user a short series of questions about their residency status, tax status and the source and purpose of the funds they want to transfer. Based on current exchange control and tax rules, it indicates whether an AIT is likely to be required and, if so, what supporting documentation is needed.
“This helps people know upfront what documents they need, so the AIT process can be sped up,” says Kransdorff. “And if someone is told by their bank that they need an AIT when they don’t, they now have the information to go back and query it.”
Kransdorff explains that Clara is an AI guide, not a substitute for professional advice. “It’s not giving formal advice, but it helps people understand the key considerations and the requirements in their circumstances.”