The South African Revenue Service (SARS) along with the South African Reserve Bank (SARB) recently announced that they would consider applications by South African trusts to make distributions to offshore trusts.
It had been the practice of SARS not to approve the release of funds when resident Trusts make distributions to non-resident Trusts. Following queries in this regard, SARS herewith clarifies its stance on the matter and confirms that it will consider approval for the release of funds/amounts distributed to non-resident Trusts, subject to certain requirements having been met.
This new dispensation allows South African trusts to apply to the SARB for approval to distribute money to offshore trusts. This means that if you have a South African trust, you can, subject to receiving tax clearance and SARB approval, transfer funds to offshore jurisdictions
The process involves 2 steps. Firstly, the trustees of the South African trust must apply to SARS for tax clearance to remit the funds offshore. This application will involve an in-depth audit of the trust’s tax compliance and the source of funds for the distribution, ensuring strict compliance with the local tax laws.
SARS has taken note of the fact that the SARB has relaxed certain exchange control requirements but has decided, based on the risks involved, to introduce the above-mentioned requirement to mitigate the risks.
SARS will perform verification processes to ensure that strict interpretation of the relevant sections of the Act are complied with. Note that the non-resident Trust must be a beneficiary of the resident Trust, and the distribution will be considered by SARS only if it complies with the terms and conditions in the Trust instrument of the resident Trust.
SARS will allow such distributions only if the resident Trust demonstrates that all tax liabilities in respect of the distribution were or will be settled.
If SARS is satisfied with the tax compliance assessment, it will issue what is called a Manual Letter of Compliance. The second step involves an application to the SARB for approval to externalise the funds, which is done through an authorised dealer
The SARB has not released a formal circular permitting these transfers. As a result, there are no explicit written regulations governing the permissibility of these trust-to-trust applications. These applications are currently handled on a case-by-case basis.