How the SARS–SARB–Treasury bureaucratic tangle turns SA emigration into a nightmare, accelerates capital flight and chokes reinvestment - William Louw (Sable International)

South Africans looking to work or settle abroad, whether for a few years or permanently, are increasingly trapped in a bureaucratic maze created by the South African Revenue Service (SARS), the South African Reserve Bank (SARB) and National Treasury. In an interview with BizNews, immigration tax specialist William Louw of Sable International argues that these authorities operate with overlapping mandates and conflicting definitions of “residency”, leaving ordinary people confused and exposed. The result, he says, is damaging with expats severing all financial ties with South Africa, extract every cent and asset they can, and abandon any intention of returning with their skills or capital. According to Louw, the system even discriminates against South African ID holders living abroad, granting them fewer rights than foreign non‑residents, a contradiction that raises constitutional concerns. Far from protecting the economy, Louw contends, these policies accelerate capital flight, deter future investment and ultimately undermine South Africa’s long‑term economic prospects.

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Edited transcript of the interview

Linda van Tilburg (00:00)

Today, I have William Louw, an immigration specialist and tax practitioner from Sable International, to unpack the increasingly complex system South Africans face when they choose to immigrate, whether permanently or temporarily. Hi William, thanks again for joining us.

I've read the document that you sent me, and you've highlighted several structural flaws in the current immigration framework, especially for taxes. So what are, in your view, the most critical weaknesses?

William Louw (00:33)

Well, the thing that I think has happened is that Treasury has decided how they want certain systematic structures played out, and SARS and the Reserve Bank are getting confused as to how they should link everything, and they're trying to overlap into each other's realms, causing confusion by using terms which quite frankly, I don't think they should be considering and they should be almost staying in their lane to say, let's look at how we deal with our structure; we can maybe use the other department to assist in doing certain things, but let's just make it easier for the taxpayer to deal with their affairs, either from exchange control or tax purposes.

Linda van Tilburg (01:27)

For people who are going through this painful process or might be going through it, what happens? Do you have to liquidate all your assets?

William Louw (01:50)

No, you're not meant to. The problem is that the way SARS and the Reserve Bank have structured their systems, it's basically forcing people or individuals who leave the country to actually consider liquidating everything because it becomes too painful going forward to work with the two departments and leave assets behind, which is a big problem, and I think it'll damage the economy.

Linda van Tilburg (01:53)

Take us through the steps that somebody needs to take if they are emigrating.

William Louw (01:55)

So, the first thing you need to look at is you need to tax emigrate out of South Africa, which is the application with SARS, where you tell SARS, I've left on X dates. These are the assets when I've left. I paid my exit tax. I then get a letter from SARS confirming that I'm a non-tax resident, which will then change that SARS is aware that they've got limited taxing rights from my worldwide income streams and assets to my South African sourced income streams and assets. So that's all fine.

One of the complications with SARS, however, is that they don't fully understand the difference between tax immigration via ordinary residents, physical presence, or the double taxation agreement. They seem to think that all of them are one-off effects, which is not the case. Each one has its own aspect in the law, and a double taxation agreement is only applicable where South Africa would see you as a tax resident under local legislation, and the other country sees you as a tax resident under their legislation.

And then the governments have agreed to say, although we each see them as tax residents, we will now decide who's going to be the tax-dominant country and the other one defaults to a non-resident, so it's easier to manage your tax affairs. 

So, for somebody who relies on the double taxation agreement, they have to evaluate annually whether the tax status has changed from or to South Africa, and it can change year-on-year by a simple decision, which you don't forecast, and suddenly you find that you've changed your tax status without intention, with all its effects. And that's a big problem from the SARS side. 

The Reserve Bank, in their opinion, have decided that although they're meant to be controlling foreign exchange for South African residents under Home Affairs, they are bringing in the tax terms into play. So basically, what they say is that if you have a South African ID and are living in South Africa, you are an exchange control resident. If you have a foreign passport but are living in South Africa and have residency to stay in South Africa, then they will see you as a resident and allow you to utilise the same banking system. 

But now they've added the extra complexity to say that if you've tax emmigrated out of South Africa, even if you're a South African ID holder, we will see you as a non-resident for exchange control, which basically means you have to convert all your bank accounts to non-resident bank accounts. You lose access to certain allowances, and it gets very confusing. Now, the biggest problem with this aspect is that if you tax emigrate under the double taxation agreement, under local laws, you're still a tax resident, but SARS says that you're a non-tax resident, which means the bank is going to change you to non-resident, restrict your allowances while you still have intention to stay in South Africa and still have a lot of assets in South Africa which makes life very difficult.

Linda van Tilburg (04:49)

It is so complicated. How do you make sense of that?

William Louw (04:55)

You don’t. And that is why I think back to the core and the Reserve Bank should rather say, " Are they a South African ID holder, yes or no. Are they a passport holder, who lives in South Africa, yes or no, to make it easier to manage those cash flow events. I can understand them wanting to limit certain transactions, but they don’t have to bring in tax terms and tax changes just to do that control. 

The Treasury has also said that they want to try to relax exchange control, but what has happened now with the Reserve Bank is that they've actually tightened exchange control. And if you have left South Africa and you're facing all of these headaches, quite frankly, if it were my decision, I'd probably just rip everything out of South Africa because I don't want to deal with all the red tape. I don't want a situation where the bank has now classified me as a non-resident, frozen my bank account, and I cannot access my money. And the only way for me to fix it is to get a piece of paper from SARS saying that I'm a non-tax resident, which can take six months after I've left. 

And in the interim, the only other way to unlock my bank account is either come back to the bank to unlock it or get this letter so that they can maybe unlock it. And it just causes havoc. We're having a lot of cases like that with people who approach us where they've got businesses in South Africa, they are passport holders or ID holders who are living outside the country, and their bank accounts are being frozen, and they cannot pay their staff.

Linda van Tilburg (06:25)

So, it gets to the definition of immigration. 

William Louw (06:22)

Well, immigration should only be where you give up your passport rights, which is to live in the country. It's got nothing to do with tax. It's got nothing to do with exchange control. And they need to look at what those definitions are and don't muddy the waters between the two of them, the three of them actually. Treasury just gives guidance. And then Home Affairs controls your passport in and out of the country. 

Tax controls, what taxing you have to pay, what reporting you might have to do, but exchange control should just be how do you move your money in and out of the country, are you allowed bank accounts, yes or no, and that should be linked to the people who are resident in the country, which would normally be people who are resident for passport control, as well as foreigners who've got a foreign passport who are living in the country because they've got permission from Home Affairs to live in the country. Otherwise, you're just going to confuse everything and make everything so much more difficult.

Linda van Tilburg (07:15)

What is your position if you say, I'm just going to work somewhere else for a couple of years and it turns into decades, and then they want to return?  What is their position?

William Louw (07:26)

Yeah. So, it's likely that you're going to tax emmigrate out of South Africa, but because you're going to work abroad, you might still leave a life in South Africa.

And then if you have to close or convert your bank accounts to non-resident bank accounts, then how do you keep your life in South Africa? A lot of people leave the country, they still have bank accounts in South Africa, they still have property in South Africa, they have their pensions and their RAs, sometimes they continue contributions to those, and now all of a sudden the Reserve Bank says, no, we're now going to make your life difficult, so you can't keep those assets going.

A lot of South Africans, I believe, go abroad. They are working. Their plan is to come back to South Africa, maybe in five years, maybe in 20 years. But while they're working abroad, because they know they want to come back to South Africa, they're building up their asset base and life in South Africa for the return.

With these changes to the Reserve Bank, which is being blocked, the economy is losing out because it's not getting investment from South African ID holders back into South Africa. At the moment, you're getting more investments from people who have foreign passports to invest in South Africa, and now they're starting to have difficulty, which means, are they going to leave their investment in South Africa?

Linda van Tilburg (08:37)

So, in your opinion, is this the Reserve Bank's treatment of non-tax residents unconstitutional?

William Louw (08:42)

I believe it might be. I'm not a lawyer, so I'm not going to say yes or no, definitely. But if you look at what is happening, you have a South African ID holder who's living outside the country versus a South African ID holder who's living inside the country. And then you've got a passport holder who's a non-resident living inside the country. 

So the person who's got the most rights is a South African ID holder living in the country. The person with the second rights is a foreign passport holder living in South Africa. Then, after that, you might even find that a foreign passport holder who's not living in South Africa has more rights than an ID holder living outside of South Africa. And how can that not be unconstitutional in my little limited knowledge?

Linda van Tilburg (09:25)

So why do they make it this complex?

William Louw (09:28)

I'm not sure. I think they're just controlling to try and minimise cash flow out of South Africa. But what they're doing with this method is they're persuading people to start taking all their money abroad.

You've even got situations where somebody who's retired abroad and they get a living annuity from South Africa or a pension from South Africa, now they're having difficulty getting that money out of South Africa, just because the exchange control says they may not send it out abroad, and they may not use their single discretionary allowance. Some items they have to use what's used at AIT or authorisation for international transfer. That, however, is an application to move capital out, not income. 

Income, according to the Reserve Bank, should be easy to move abroad if you can prove that you're a non-resident and you can prove that as income. However, they're making it so difficult to move those funds out that foreigners can't easily move the money abroad, which means that it is likely that they want to invest in South Africa.

Linda van Tilburg (10:29)

What is the real benefit for the government? What kind of tax are they managing to levy?

William Louw (10:36)

It has no tax impact. That's the problem. If you're a tax resident, you pay tax on your worldwide income. If you're a non-resident, you pay tax on your South African-sourced income, which would normally be your dividends, your interest, your rentals, your living annuities and similar. Certain double taxation agreements give those taxing rights to other countries and not to South Africa. So the exchange rate by blocking the money leaving doesn't change what taxing rights SARS is allowed to have.

Linda van Tilburg (11:04)

So, if the government wants to make this immigration process fairer and more predictable, what simple fixes would you suggest?

William Louw (11:12)

Well, as I said earlier, I believe that they should look at, for exchange control, who is allowed to have a bank account and having a South African ID, I would think, would allow you to have a normal South African bank account.

You might have certain limitations on borrowings. That's something different, but to have a bank account and be able to use it, it's fairly easy, and that's what I would do. 

For SARS, they just need to tweak their systems to better understand what is actually happening and look at how they want to deal with certain things. For example, if you tax emmigrate out under a double taxation agreement, well, they will still see you as a resident f for tax purposes in South Africa, but in the tax return, they can ask, are you applying for relief under DTA, please give us a proof that you've got taxing rights in the other country so we can tax that you as a non-resident with its implications and then the following year they can do the same thing to say are you still a non-resident or not.

Linda van Tilburg (12:13)

So, do you think these policies discourage people who want to come back to South Africa to reinvest in the South African economy upon return?

William Louw (12:21)

Well, a lot of people are not going to invest in South Africa before they return. They might only invest once they return. But at that stage, if you've built up your life and all your asset planning outside of South Africa, by moving back to South Africa, it's unlikely you're going to change that system because foreign systems allow you to keep the assets where they are, so why would you change it, which means you're only going to bring in what you live off, so there's less money inside the economy, and all that investment is still outside, so how are you going to build South Africa's economy like that?

Linda van Tilburg (13:03) 

That is the question again: what is South Africa gaining by it? 

William Louw (13:05)

I don't see there being any real gain because the economy needs investment, and the best way to invest is actually using South Africans who have moved abroad just to get knowledge and experience to come back and develop.

Now you have situations, for example, that South Africa might move abroad, working there, start a sideline business in South Africa, start employing people in South Africa for the returns, they've got a nice business running. With the Reserve Bank blocks, it is now becoming more difficult, which means it's less likely to happen, which means you have less investment in South Africa, which means there's less growth, less employment, so actually, you lose employment with these policies, I think.

Linda van Tilburg (13:46)

William, you mentioned the tightening of exchange controls. I spoke to somebody the other day, who said that with cryptocurrencies, it's quite easy to take money out of South Africa. So why? 

William Louw (13:57)

Well, that might be part of the reason why the exchange control is trying to tighten things, because it cannot control the crypto. But in the big world market, money flows very easily. You need to foster the right environment for people to want to invest in. In which case, then you don't mind how the money leaves or comes in because the investment will stay here. If people get rich returns, they're going to leave the investment where it is. So, they have the option to take currency out using crypto; it's not going to disappear that easily. 

Crypto is going to be the same worldwide. And at some point, I'm pretty sure there will be some sort of oversight of crypto because it's going to have to happen. So why chase the money out until that happens? And then you've got nothing because everybody's outside. And why would you want to change the system? Why would you want to invest where you're not comfortable?

Linda van Tilburg (14:50)

Anything you'd like to add, William?

William Louw (14:53)

I just wish that certain people would listen and think about the structures and the impacts that they're having, because it sounds like the Reserve Bank is not thinking about this.

SARS has not spoken to tax practitioners who often deal with certain aspects of niche markets. And I think that they are misunderstanding or losing track of certain options that might be happening, and how to streamline things between SARS, the tax practitioners and the taxpayers. Because if that runs smoothly, it's easier to collect your taxes and everybody's happier. Everything happens faster. There's less frustration, in which case, because people are more likely to invest back into Africa.