Recent changes to South Africa's exchange control manual will discourage new foreign investment into South Africa, incentivise existing non-resident investors to divest from South African assets, reduce liquidity on the JSE, and may prevent non-resident investors from accessing their South African income for weeks or even months, increase transaction costs and administrative complexity for legitimate investors and create a competitive disadvantage compared to other emerging markets.

The Institute for International Tax and Finance has expressed serious concerns over these changes, which introduce significant new compliance burdens for non-residents and risks undermining foreign investment at a critical time for the country's economy.

Last week, the South African Reserve Bank's Financial Surveillance Department issued updated guidance in the exchange control manual that fundamentally changes the treatment of income remittances for non-residents.

Historically, capital transfers by non-residents required an application for an international transfer (AIT) tax compliance status PIN from SARS, while income could be remitted without such approval.

Under the new requirements, several categories of income now require an AIT for non-residents, including:

• Dividends, profits, and income distributions
• Directors' fees
• Trust income
• Rental income.

Meanwhile, other income types remain exempt from the AIT requirement, including interest, salaries, fees for services rendered, pensions, and annuities.

Inconsistent treatment confusing

Explains Michael Kransdorff, director of The Institute for International Tax and Finance, "This creates an inexplicable inconsistency in the treatment of different types of income. There is no rational basis for requiring an AIT 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."

A particularly concerning aspect of the new regime is that, unlike South African residents who benefit from a R1 million annual single discretionary allowance to remit funds abroad without requiring SARS tax clearance, no such threshold exists for non-residents. This means that AITs will be required even for relatively small income amounts, placing a disproportionate administrative burden on non-resident taxpayers.

Non-residents who are not registered as taxpayers with SARS cannot escape the additional compliance burden. These individuals must obtain a manual letter of compliance – international transfer from SARS.

The AIT process requires submission of extensive documentation, including:

• Documentary proof of non-residency status
• Detailed source of funds documentation
• Recent bank statements proving the availability of the funds
• Statement of assets and liabilities for the past three years.

According to SARS guidelines, the revenue authority has up to 21 business days to process an AIT application. However, in practice, processing times are considerably longer as SARS frequently requests additional information. This means non-resident investors may be unable to access their South African income for weeks or even months.

Impact on JSE investments

The timing of these changes is particularly concerning. South Africa has been working to attract foreign investment, and non-resident investors play a crucial role in the JSE's liquidity and depth. Recent data shows that foreign investors sold a net R113.3 billion 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.

"This is an own goal of significant proportions," Kransdorff emphasised. "South Africa was recently removed from the FATF grey list 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."

Call for policy review

The Institute for International Tax and Finance calls on the South African Reserve Bank to:

1. Conduct an urgent review of these exchange control changes
2. Introduce a de minimis threshold for non-residents (similar to the resident single discretionary allowance)
3. Harmonise the treatment of different income types with a clear policy rationale
4. Streamline the AIT process with a turnaround  of seven 7 days
5. Provide transition arrangements and guidance for affected investors.

"South Africa cannot afford to send mixed signals to foreign investors," Kransdorff concludes. "We need to be making it easier, not harder, for non-residents to invest in our country. These changes urgently need to be reconsidered."