Unravelling confusion over SA exchange control rule change and non-resident status – Graham Barratt

In 2023, the South African Treasury responded to the outflow of private capital from the country with a regulation change just before the long weekend in May that some commentators labelled as ‘sneaky.’ This raised questions about what this means for South Africans wishing to move money out of the country. Graham Barratt from Sable International says that while there was a lot of confusion about exchange control rules, he believes the change was not meaningful. In this interview with BizNews, he demystifies the implications of these changes and emphasises that exchange control, far from being abolished, remains a fixture in the country. He also discusses the timing of transferring money out of South Africa, suggesting that the uncertainty typically preceding an election has already been factored into the value of the rand. Barratt also outlines the necessary steps for externalising their assets or transferring money abroad. – Linda van Tilburg

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Excerpts from the interview

Significant reaction to changes, despite their lack of impact

I don’t believe that the regulation was changed sneakily. There’s been a lot of reaction to it, and people are trying to understand it all. Essentially, the change was not very meaningful. There’s been a name change. What was previously known as a tax clearance certificate is now referred to as your approved international transfer. The process remains the same. You apply to SARS, and you get a pin.

You receive the clearance to transfer your funds. But no, I don’t think it’s sneaky. I believe they’re just trying to get their ducks in a row. Essentially, what the South African Revenue Service (SARS) is trying to do is to ensure that they’ve accounted for all the individuals who have externalised wealth over the generations before now. So, it’s a bit more due diligence that we need to undertake. However, obtaining the clearances and such is still a simple process through e-filing. When I say simple, I mean it’s simple for companies like ours that do it regularly. However, for your everyday investor looking to externalise some funds, it can be challenging.

Exchange controls in SA: Here to stay 

Exchange control has never left. It’s here, and I don’t foresee it disappearing anytime soon. The regulations or controls have been somewhat relaxed over time. Years ago, we could only send out R1 million; then it was R2 million over a lifetime, and then R4 million. Then we were given the SDA, the Single Discretionary Allowance, which allows you to send out R1 million as a gift, loan, or travel allowance. This was later extended to a further R10 million as part of what was previously known as the tax-free certificate, and now it is your approved international transfer. As a South African resident over 18 with a tax number in good standing, you can send up to R11 million Rand abroad for investment purposes.

So, has exchange control disappeared? No. Is it going anywhere? I don’t think so. Have they relaxed it a bit? Yes, they have. Did they change the name? Yes. Is it the end of the world? Not at all. People are still sending funds abroad, legitimate funds, of course. This process ensures that SARS gets its slice of the pie. They want to ensure that the funds have been earned legitimately, that you’ve reported them, and that you’ve paid tax on them. Once done, you can externalise the funds without any problem.

Confusion about ‘change of rules on exchange control and ‘non-resident’ status

There was significant confusion. Obviously, there was a bit of a buzz, and with any change, people are reluctant and a little nervous, thinking, ‘Oh, what’s this now?’ No one wants SARS poking around in their affairs. But at the same time, if you’ve dotted the i’s and crossed the t’s and done things the way they should have been done, then you shouldn’t have any issues. One of the regulations or due diligence measures is that SARS is looking to understand your worldwide assets now. Instead of having three years of assets and liabilities, they’re looking for five years. Essentially, they’re trying to understand the investors who have previously sent funds abroad. So when you’re disclosing your worldwide assets, that could be taxable income depending on where your funds are, how much you’ve sent, and so on. They’re just trying to see if they’re getting their slice of the pie.

The non-resident status is also extremely confusing. The form to leave for financial immigration, formal financial immigration, and then ceasing to become a tax resident – these changes are confusing. Some people are unsure. We chat with some clients, and they’ll say, ‘Oh, we’re receiving an inheritance.’ And we ask, ‘Okay, where are you from?’ And they’ll say, ‘Oh, I’m from England. I’ve been living in England my whole life. It’s fantastic.’ Then, suddenly, you get a copy of their passport, and it says born in Cape Town or Johannesburg. So, they’re probably a South African resident temporarily abroad in the eyes of the SARB or SARS. So, have they financially immigrated? Did they fill in their MP336B and lodge it with the SARB? Well, maybe not. They just got on a plane and left when they were a child.

Those are the kinds of questions that we ask our clients. We have a whole decision tree or question-answer model that we go through. It gives us a significant indication of the best process for the clients. It’s case by case. It’s not easily defined. I can’t say you must or you mustn’t. We have to have a discussion.

SARS is investigating past financial activities of citizens

I think they want to understand where everybody sits. If you’ve got a green barcoded ID and were born in South Africa, but you’re living elsewhere, where are you domiciled? Where is your tax residence? They want to understand everything. So, I don’t think it’s terrible. They’re just actually coming to the party now. They’re starting to understand South Africans and where they are, what they’re doing, and what they’ve done with their funds.

SA families encouraging children to leave the country before earning income 

That will be a different scenario based on whether they’ve worked abroad. Even if you leave as a child, you’re still deemed as a South African resident. You’ve got a green barcoded ID or one of the new ID cards. Even if you didn’t have an active tax number, you may need to register and then deregister. So again, it’s difficult. I wouldn’t say that’s the best advice. We don’t give advice. We try to understand where the clients are, what their scenario is, and what’s the best way for them to receive funds or have their tax affairs in order.

Options available to internationalise assets

There are so many options. Within the Sable International Group, we offer investment through migration. We offer real estate options. We have investment portfolios. Essentially, we need to understand the client’s risk profile. We need to understand their time horizon. What are they looking to do?

I represent the Forex business. We move the money from one account to the next, help them get a better rate, and give them that kind of private banking approach or service level. 

So,  it is a conversation on what’s a Plan B?’ The lifestyle in South Africa is unparalleled. It’s absolutely beautiful. I’m in Cape Town, it’s summer. We’ve had semi-gration from the North coming down into the Western Cape. People have seen the beach living and golf courses, and that is the way to go. But also, it’s good to diversify and have funds invested abroad. We can see If you are eligible to get a visa or a passport for another country, a European Union nation, the UK, Australia, or whatever. Sometimes, people like to have that sort of in their back pocket. 

Election uncertainty already priced in in the value of the Rand

Election uncertainty has been priced in already. There are a lot of factors that influence Rand. The local factors play a role, but essentially, the Rand is a minor currency, and as you know, when the US sneezes, we, the emerging market currencies, catch a cold. So we are left to mop up what happens to the rest of the world, and we feel the brunt of it. Is the Rand devalued in South Africa? We’ve lost quite a considerable amount, from R16.67 to the dollar at the beginning of last year; we went up to R19.90 around June and then in December, we were hovering around that R18/19 level against the US dollar. So, it’s a topsy-turvy world, especially with the Rand. I used to trade currency many years ago, and when I was being trained, the instructor said never to trade the Rand. It’s the most volatile currency out there. So, are we undervalued? Sure.

I think with the elections coming along, effectively, South Africa is for sale. So, we’re hugely undervalued. A fair market value would probably be around R15, R16. But it takes a long time for it to strengthen. It can weaken a lot faster than it can strengthen. But there’s room for it to pull back and strengthen.

Is it a good time to move money overseas? 

I ask clients, what’s your time horizon? We’ve got that calendar year story now with our exchange control, so there are a lot of guys moving money at year-end, but again, that allowance opens up each calendar. So it depends on how much they want to send and their time horizon. What do they need, and what are they looking to get out?

If they want to move now because they need the money in the UK or wherever they’re going to Canada or the US, then perhaps today’s a good day. But you wait for the ebbs and flows. If you’ve got the time, you pick a range or number where you want to jump, where you feel that you’ve got fair market value for it, and then you go and externalise at that time.

The first step you need to take if you want to move money out of the country

I think that’s a very good question because people are unsure. They don’t know where to go, who to talk to, or what to do. I think they need to contact a professional. They need to chat about externalising funds with a treasury outsourcing company, much like Sable International. We can provide options. We can help understand their needs. After all, this is what we do. It’s our focus; it’s our core business.

Unfortunately, sometimes, when clients go directly to the bank or try to do it on their own, they run into a few hurdles. They’re chatting with call centres or people who are somewhat in the know, but they’re not chatting with the professionals who know exactly what they need to do, and they get pointed in the wrong direction. So, chat with a professional. We’ll sit down, understand your needs, and provide guidance. Whether you use it or not, that’s your prerogative, but it’s best to go to your financial advisor or chat with a treasury outsourcing company like us.

If you go straight to SARS, it’s so difficult. You’re not going to get to chat with anyone anyway. It’s moving online, and you’ll wait in queues for days to get into those things. That’s the reason why we have a job. That’s the reason why I have a job. That’s why we’re in business. The service we’re offering is not something the high street banks or tax practitioners can offer. They’ve got thousands and thousands of clients. They don’t have the time to sit down and understand it.

This is our business. It’s the only thing we do; our clients are the most important people. Without them, we don’t have a job. So, we almost thank the institutions and the banks for making hiccups or giving us a reason to have a job out there and roll out the red carpet for our clients.

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