The Institute for International Tax and Finance has warned SA authorities against new rules requiring nonresidents who receive SA-sourced dividends, rental income, trust distributions or directors’ fees to obtain an SA Revenue Service (Sars) “manual letter of compliance — international transfer” before their funds can be released.
The institute said the change, announced by the SA Reserve Bank’s financial surveillance department last week, would “discourage new foreign investment into SA, incentivise existing nonresident investors to divest from SA assets, and reduce liquidity on the JSE”.
It said the move might also prevent nonresident investors from accessing their SA income for weeks or even months.
“This creates an inexplicable inconsistency in the treatment of different types of income. There is no rational basis for requiring an AIT [application for an international transfer] for dividends but not for interest, or for rental income but not for service fees.
“This arbitrary distinction makes no sense and will only serve to confuse and frustrate foreign investors,” said Michael Kransdorff, director of the Institute for International Tax and Finance.
“A particularly concerning aspect of the new regime is that, unlike SA residents who benefit from a R1m annual single discretionary allowance to remit funds abroad without requiring Sars tax clearance, no such threshold exists for nonresidents. This means that AITs will be required even for relatively small income amounts, placing a disproportionate administrative burden on nonresident taxpayers.
“SA cannot afford to send mixed signals to foreign investors. We need to be making it easier, not harder, for nonresidents to invest in our country. These changes urgently need to be reconsidered.”
Currently, capital transfers by nonresidents require an application for an international transfer (tax compliance status PIN) from Sars, while income could be remitted without such approval.
SA authorities have increasingly been introducing various new rules to the chagrin of capital markets players.
The National Treasury earlier this year called for tax reform, which, if implemented, would have effectively ended the use of preference shares as a tax-efficient financing option in SA and is likely to have pushed companies towards debt financing instead.
The department later backtracked on the proposals following an industry backlash.
Kransdorff said nonresidents who are not registered as taxpayers with Sars could not escape the additional compliance burden proposed by the Bank, saying the timing was particularly concerning.
“SA has been working to attract foreign investment, and nonresident investors play a crucial role in the JSE’s liquidity and depth. Recent data shows that foreign investors sold a net R113.3bn in JSE-listed shares in 2024, continuing the decline in foreign ownership of the JSE from highs of over 50% in years before the Covid pandemic,” Kransdorff said.
“This is an own goal of significant proportions. SA was recently removed from the FATF greylist after two years of intensive reforms to restore confidence in our financial system. Now, without any prior warning or consultation, we are introducing new barriers that will actively discourage foreign investment. The message being sent to international investors is deeply troubling.”
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