TAX CLEARANCE CERTIFICATES – FOREIGN INVESTMENTS BY SOUTH AFRICANS
1) Foreign Capital Allowance
a) Individuals, older than 18 years, in good standing with SARS, may invest R2 Million (previously R750 000) abroad during their lifetime.
b) Income accruing thereon may also be retained abroad. This dispensation has been granted by the South African Reserve Bank until further notice.
c) Take note that any foreign assets declared under the Exchange Control and Tax Amnesty Act 2003 are counted towards your individual foreign investment allowance, therefore such amnesty declared foreign assets will reduce the overall you’re able to invest offshore via this dispensation.
2) Using your offshore allowance
a) In terms of South African exchange controls, you are allowed to take a maximum of R2 Million out of the country to invest overseas.
b) In addition, you may leave certain assets in a foreign country. These assets are:
i) money you earned while working abroad;
ii) assets you inherit from a foreign country;
iii) in the case of immigrants, assets you owned before you emigrated to South
iv) Any investment growth on your foreign assets.
3) To qualify to use the R2 Million allowance, you must:
a) Be a natural person of at least 18 years of age – the allowance does not apply to investments made by a trust, close corporation or company; and
b) Apply for a tax clearance certificate from the South African Revenue Service (SARS) office where you are registered as a taxpayer. This certificate will prove to the authorized exchange control dealer transferring your funds that your tax affairs are in order.
c) You must obtain a Tax Clearance Certificate from the SARS office where you are registered as a taxpayer prior to the approval of any foreign investment.
Your Tax Affairs must be 100% up to date in order to qualify for a Tax Clearance Certificate
Requirements: Tax Clearance Certificate
d) A clearance certificate in respect of foreign investments may only be issued by an official from SARS after the tax status of the person requesting the certificate, has been checked and found to be in order, in other words:
e) Due tax returns must have been submitted (unless extension for submission was granted), i.e.:
i) IT12 – Annual return of Income,
ii) IRP6 – Return for Payment of Provisional Tax,
and if relevant
iii) VAT201 – Return for remittance of Value Added Tax,
iv) EMP201 – Return for remittance of PAYE, SDL & UIF,
v) IRP501 – PAYE Reconciliation of Tax Deductions and Certificates
f) There must be no arrear taxes outstanding (Income Tax, provisional Tax, VAT, PAYE, SDL, UIF); or Any deferred arrangements made must be adhered to;
g) All persons who wish to invest offshore are required to register for income tax purposes before obtaining a Tax Clearance Certificate irrespective of their present status regarding their liability for registration as a taxpayer.
h) No requested outstanding information for Income Tax.
o Determine your tax status before lodging your application by visiting your local SARS office or contacting the national call centre at 086121218, to Confirm reliability of information by making more than one enquiry and ask for a call reference number,
o Ensure that ALL taxes & returns are checked, including IRP6 returns and (if applicable) also SDL and UIF returns or payments – this is often overlooked.
o Make arrangements for deferred payment of any outstanding taxes before filing your application,
o Submit any outstanding returns, or acknowledgement of receipt by SARS, together with your application – SARS will generally arrange for urgent processing so that your application could be considered.
4) How to Apply for a Tax Clearance Certificate Certificate:
a) You can only apply for a tax clearance certificate from the SARS office where you are registered as a taxpayer.
b) Application must be made on the following prescribed forms (Electronic format enclosed):
i) FIA001 – In respect of foreign investments up to R2 Million,
ii) FIA002 – In respect of recurring foreign investments not exceeding R30 000 p.a.)
c) Application forms are available at any SARS office or can be downloaded from the SARS website at http://www.sars.gov.za [Go to ‘Forms’ and then select ‘Tax Clearance’]
d) All mandatory fields on the application must be completed in full and you must provide a Statement of Personal Assets and Liabilities (if not already declared on your Tax Return [IT12])
e) Documentary proof in support of the amount to be invested was sourced must also be provided, e.g. latest bank statement, loan agreement, proof of donations and donations tax paid, etc.
f) SARS will generally finalize the Tax Clearance Certificate within 3 days of receipt of your application; ask when it may be collected or contact the National Call Centre at telephone no. 0860 12 12 18 after a period of three days to enquire on the status of your application.
g) The approved TCC for foreign investments can only be collected at the SARS Branch Office where you are registered for Income Tax purposes.
h) You or your agent must produce a South African identity document when collecting the TCC.
i) If the TCC is collected by a representative (i.e. any other person except the taxpayer) then a power of attorney must be produced to the SARS Branch Office.
j) Should your application be declined then SARS must inform you in writing and provide you with a notification of all outstanding matters in writing via post / fax.
Important – The hidden Agenda behind the SARS request for Statements of Personal Assets & Liabilities:
• The sole purpose for this request is to determine your net asset growth over a number of years and ultimately to identify any undisclosed income,
• This poses no threat should you not have provided such a statement in prior years but ensure that:
your statement is accurate,
keep record of such statements and perform a capital
reconciliation before submitting subsequent statement to SARS.
5) Tax implications – Foreign investment income
a) If you received any foreign interest or foreign dividend income it is your responsibility to declare such income or accruals in your tax return.
b) Undisclosed offshore investments will be deemed to have earned income equal to the fringe benefit interest rate.
c) If you invest in a true offshore fund, you may not be liable for tax in the jurisdiction in which the fund is domiciled. But as a South African resident, you must declare any income and/or foreign dividends earned, and/or capital gains realised from an investment in a foreign collective investment scheme to SARS.
d) You will probably receive a statement from the scheme showing the income, dividends and any sale of units or shares. You can use the statement to complete your tax return. If you do not receive a statement, it is your responsibility to ensure that you obtain the necessary documents.
e) If you have invested in an onshore scheme, you may have to pay tax in the country in which the scheme is domiciled. As a South African resident, you must still declare any income and foreign dividends you have earned from your investment for tax
purposes in South Africa.
f) You may be able to claim the tax you have paid in a foreign country as a deduction against your income tax in South Africa.
g) Every year, South African taxpayers may earn R19 000 of interest income tax-free (R27 500 if you are over the age of 65). Of this amount, R3 500 may be offset against foreign dividends and interest from offshore investments. The R3 500 must first be
used against foreign dividends and then the remainder can be offset against foreign interest.
h) You are entitled to realise a capital gain of R16 000 each tax year without having to pay capital gains tax (2009 Tax Year).
i) Please note that the gross amounts must be declared, as SARS will programmatically apply the 50% split if you are married in community of property. SARS will also apply the exemption programmatically.
j) Any foreign tax credits withheld from foreign investment income must be declared in the corresponding section of the return. Please note that the gross amount of credits must be declared, as SARS will apply the 50% apportionment if married in community of property. It must also be noted that the foreign credits in respect of
foreign interest and foreign dividends must be declared separately.
k) You also need to indicate whether you chose to be taxed on net foreign dividends. If yes, the amount received must be declared after setting off the withholding tax. No foreign tax credits will be considered if the election is “yes”.
l) For further details refer to the Interpretation Note No. 18 on the SARS website http://www.sars.gov.za or contact your local SARS office.
6) Foreign currency translation
a) A resident who derives income measured in a foreign currency must, in translating the taxable income to Rand, make an election between either –
i) The spot rate; or
ii) The average exchange rate for the relevant year of assessment
b) The average exchange rates can be obtained from the SARS website http://www.sars.gov.za. /forms / Income Tax / Average exchange rates for a year of assessment
7) Proof of payment of foreign taxes
a) The under-mentioned serve as examples of proof that will be accepted as proof of payment, if requested, in respect of foreign taxes paid:
b) Where foreign tax has been withheld at source – the original documentation issued by the applicable institution.
c) Where foreign tax has not been withheld at source – an assessment or receipt issued by the relevant tax authority.
Contact Fanus Jonck at email@example.com for any South African tax assistance.