Exchange Control is the bugbear of every South African residing outside SA or even for those in SA wishing to internationalize their business or investment portfolio.

South Africans have seen a gradual ease of exchange control rules and although most transactions remain under “surveillance” the ease of transfer and tracking have been made substantially easier of the last few years.

Tucked away with Finance Minister Pravin Gordhan’s budget address was a small note in section W3 suggesting he will make it easier for SA pensioners living abroad.

Pensioners living abroad can now extract their monthly pension and retirement annuity income from South Africa (SA) without the need of a tax clearance certificate, despite living abroad as so-called temporary non-residents.

The Exchange Control (Excon) definition of a resident is narrowly defined and a person having departed with the intention to relocate abroad, without completing the formal emigration process, is treated as a resident temporarily abroad.

The significance of this definition speaks not only to the tax exemption enjoyed by most but also to the annual travel allowance (TA) which is available to a departing resident the year of departure but never again.

Yes, moving abroad made it impossible to avail to the tax-free R1m annual Single Discretionary Allowance or SDA.

It is true that this restriction extends to an absolute credit and debit card restriction applicable from the day of departure. Unused TA may be sent by SWIFT or Bank Draft and credit and debit cards post departure date may only be used in South Africa, during you return visit.

Until about July 2013 we saw banks and forex dealers allowing temporary non-residents to avail themselves to their annual single discretionary allowance (SDA), which includes inter alia a travel allowance, an R1m foreign capital allowance a.k.a. as investment allowance (FIA) without tax clearance allowance and a gift or loan permission, provided the total of all the various allowances did not exceed R1m per annum.

Suddenly this practise came under Excon scrutiny and most forex dealers alerted their clients living abroad, that they may no longer avail to any sub-part within the SDA. The writer took a different view and argued the up to R1m FIA without tax clearance and the up to R1m gift or loan allowance was not under attack. Very few banks were prepared to entertain such a suggestion and the pensioners living abroad, not required to file tax returns, were forced to re-register for tax and obtain the R4m FIA tax clearance. Sadly my colleagues and private / forex bankers were not falling over themselves to present the case to SARB, as the additional windfall of fees on unnecessary tax clearances were not to be sneezed at.

Then budget day approached and rumours were abound that, because of the weak Rand, the Excon allowances will all be increased. The budget came and no monetary adjustments were announced. Despite the boring election year budget (which failed to cross the proverbial Rubicon) very few people gave attention to the Excon announcements tucked away in the detail handed in at parliament just after 3 pm on Wednesday February 26th, 2014.

Not only did the Excon changes that the Minister announced ease the pressure on pensioners, he went as far as to confirm that he temporary non-residents may avail to the gift allowance and the new “releasing” of retirement income.

Excon rules, as we saw in the Shuttleworth case, does not follow the parliamentary process and is often issued by the SARB themselves. Perhaps this is why most commentators missed the 2014 Excon easing measures.

The Financial Surveillance Department (FinSurv or Excon) within South African Reserve Bank (SARB) issued on 27 February 2014 an Exchange Control Circular No. 4/2014 duly amending the Exchange Control Rulings (all whom collated is referred to the as the Excon Manual) only one day after the Minister’s subtle hints tucked away in parliamentary documents.

Without going through parliament and effective as of 27 February 2014, this is then the new rules:

SECTION B.3 (A) (ii) INCOME TRANSFERS

The earlier sub-section was replaced and now reads:

“Transfers of income, other than transfers from pensions and/or retirement annuities, may not be made to persons who, although temporarily resident outside the CMA, are regarded as residents of the Republic for exchange control purposes.”

In plain English, temporary non-residents are not entitled to income transfers, nor entitled to avail to the annual travel allowance. They may use their annual capital allowances (FIA as explained above) albeit that it was funded from pension income.

With immediate effect pensioners, widows and “orphans” receiving pension benefits may now ask for the monthly pension or annuity to be remitted abroad, without the need of a tax clearance certificate. Most “orphans” have their monthly pension benefit paid via their surviving parent yet the true orphan’s pension is often paid into a trust created by the pension fund and more clarity is awaited on the said trust distribution’s as there is already confirmation that a living annuity funded by single premium transferred from an employer fund or retirement annuity may be dealt with in terms of the above rules.

SECTION B.4 (L) (i)

The second paragraph has been deleted and substituted with the following:

“Except for the transfers authorised in terms of the provisions of sub-sections (D)(i) above, B.2(B)(i) and B.3(A)(ii), no further foreign exchange may be accorded to such persons without the specific approval of the Financial Surveillance Department.”

Now this is typical to legalize and although the Consumer Protection Act forces companies to produce agreements and fine print in understandable English, government and quasi government agencies continue to issue documents not easily understood by the average citizen.

Allow the writer to explain each and every one of the Excon benefits listed by reference to its sub-sections in the Excon manual.

In simple English, the writer respectfully submits how it should have read:

Except for the annual gift and loan allowance and annual FIA of R4m in aggregate, not exceeding R1m per calendar year and the current year’s pension and retirement annuity income, no further foreign exchange may be accorded to temporarily non-residents without the specific approval of the Financial Surveillance Department.

For the Excon specialists and forex dealer’s writer then quotes from the SARB Excon Manual the sub-paragraphs referred to in Circular 4 of 2014.

B4 (D) (i) MONETARY GIFTS AND LOANS (REFERRED TO AS D (i) ABOVE)

Authorised Dealers may allow resident individuals to transfer monetary gifts and loans within the limit specified in (A)(i) above [Writer adds: R1m per calendar year] per applicant during a calendar year to non-resident individuals and to resident individuals who are overseas temporarily, excluding those residents who are abroad on holiday or business travel.

Authorised Dealers are advised that the resident individual must produce a green bar-coded South African Identity Document for identification purposes and the identity number will be mandatory when reporting the transaction in terms of the Reporting System.

B2.(B)(I) FOREIGN INVESTMENTS PRIVATE INDIVIDUALS (NATURAL PERSONS) RESIDENT IN THE REPUBLIC

(a) Authorised Dealers may allow the transfer, as a foreign capital allowance [SARS refers to FIA or FIA001), of up to a total amount of R4 million per calendar year per private individual who is a taxpayer in good standing and over the age of 18 years, for investment purposes abroad. These investments may also be held in F.C. Accounts with Authorised Dealers.

Authorised Dealers are advised that the green bar-coded South African Identity Document is the only acceptable document proving residency in the Republic.

B.3 (A) GENERAL- INCOME TRANSFERS

(ii) Transfers of income, other than transfers from pensions and/or retirement annuities, may not be made to persons who, although temporarily resident outside the CMA, are regarded as residents of the Republic for exchange control purposes.

To understand the above, read the sub-section ignoring the underlined text. Then read including the text and a double denial equals an legitimate expectation to transfer. now it makes more sense!

TAX ON PENSIONS DEPENDS ON TREATY RULES

Many expat pensioners were forced to pay their taxes in the home country from foreign funds as Excon refused to allow transfers from SA to settle foreign tax debt on SA sourced income. Despite the monthly pension being sourced South Africa, most tax treaties allows the new home country to tax and denies SARS any taxing rights.

The new Excon circular and ruling will bring great ease to the expats living abroad.

In accordance with Circular 230 Disclosure