The Institute for International Tax and Finance has launched a free AI-powered tool to help people establish whether they may need approval from the South African Revenue Service to transfer money abroad.
Clara, which stands for Clearance Advisor for Rands Abroad, became publicly available on 1 October. It is intended for South African residents transferring money abroad, South Africans living overseas, and non-residents with money or income in South Africa. It can also be used by advisers and banks serving these groups.
The tool indicates whether an Approval for International Transfer (AIT) may be required and what supporting documentation may be needed.
Michael Kransdorff, a director of the Institute, said it developed Clara in response to confusion about when an AIT was required.
“People are often told they need an AIT simply because money is being transferred abroad, when the rules are considerably more nuanced,” he said.
For South African tax-resident individuals, the position is relatively simple: if they transfer more than R2 million a year, they are likely to need an AIT, according to the Institute.
For non-residents, whether an AIT is required can depend on the source of the funds and whether the money constitutes capital or income. Kransdorff said income categories such as dividends, rental income, directors’ fees, and salaries could trigger different requirements and supporting documentation.
He said the requirements had become more complicated following changes to the South African Reserve Bank’s exchange-control framework.
Kransdorff said difficulties could also arise where someone had left South Africa but had not formally completed the SARS process for ceasing to be a tax resident.
Such people might still have a rental property, an unclaimed pension or retirement annuity, savings in a South African bank account, or a house awaiting sale.
Kransdorff said the Institute had encountered cases in which banks advised non-residents that they needed an AIT to transfer regular pension payments abroad.
He described the case of an elderly non-resident widow living in the United Kingdom who was receiving a regular pension from a South African retirement fund. When she tried to transfer accumulated pension income from her South African bank account to the UK, her bank told her she first had to obtain an AIT.
According to Kransdorff, the bank treated the transaction as a transfer of capital, although the money consisted of pension payments that had already been paid to the widow as income.
He said the requirements for transferring regular pension income abroad could differ from those governing the transfer of capital or a lump-sum retirement fund withdrawal. The distinction was important in the widow’s case because the money she wanted to transfer consisted of pension payments already received as income.
The Institute sent the bank the relevant section of the Authorised Dealer guidance and explained why it believed an AIT was not required in the widow’s circumstances.
Kransdorff said the matter was eventually escalated to the bank’s head of exchange control, who agreed with the Institute’s interpretation. The transfer was then allowed to proceed without an AIT.
Kransdorff said the case illustrated the difficulties that could arise from what the Institute regarded as a misclassification of the payment.
How Clara works
Clara asks users a series of questions about their circumstances, including their South African tax-residency status, the nature and source of the funds, the amount being transferred, and the purpose of the transfer.
Kransdorff said the tool applies this information to the relevant SARS and exchange-control rules. It then indicates whether an AIT may be required or whether the transfer can generally be made without one.
The Institute said Clara was developed and tested using the Reserve Bank’s Currency and Exchanges Manual, SARS guidance, and current South African tax legislation.
Kransdorff said the Institute regularly reviews the regulatory framework underlying the tool. Its information and decision logic are updated when SARS requirements, exchange-control rules, or Authorised Dealer guidance change.
“That human oversight is particularly important,” he said.
Clara does not make a decision on behalf of SARS or an Authorised Dealer. Kransdorff described it as a guidance tool rather than a substitute for professional advice.
He said the tool could help users establish upfront what supporting documents might be required if they needed to apply for an AIT. It could also help them understand the basis on which they might question a bank’s requirement for an AIT.
Clara is currently free to use.
Kransdorff said the Institute could provide professional services where a user’s circumstances required advice or assistance beyond the scope of the tool.
Additional checks can extend the process
An AIT is administered through SARS’s Tax Compliance Status system. Section 256(2) of the Tax Administration Act provides that SARS must provide or decline to provide third-party access to a taxpayer’s tax compliance status within 21 business days after an application is submitted. The Act allows a longer period where this may reasonably be required to confirm the correctness of the taxpayer’s tax compliance status.
Kransdorff said that, in practice, further verification and requests for additional documents could delay an applicant’s ability to transfer funds abroad for weeks or months.
He said this could affect someone trying to pay a deposit on a home abroad or take advantage of favourable exchange rates.
