For South African residents and expatriates living abroad, reaching the R1-million annual limit of offshore spending allowed under exchange control regulations, can happen far more quickly than expected. This can soon land them in hot water with the South African Reserve Bank (SARB) who closely monitors funds flowing out of South Africa.

While traditional expenses such as foreign travel, overseas education and certain investments contribute to the Single Discretionary Allowance (SDA) of R1-million per calendar year available to South African residents and expatriates who are still tax residents, the growing use of credit and debit cards for international purchases brings real risks.

Paying for amusement such as streaming subscriptions and shopping online, has introduced an often-overlooked risk: many individuals unintentionally exceed the threshold by failing to track the cumulative impact of these everyday foreign currency transactions.

The SARB is not having any of it, and its Financial Surveillance Department (“FinSurv”) has been issuing formal notifications to residents and expatriates who are suspected to have exceeded their SDA limit for a particular calendar year.

For many, this may be the first time they realise how broad the scope of foreign exchange controls is and how daily financial behaviour, including credit card swipes, can contribute to breaching the SDA. 

It is important to understand the SDA, its practical implications, the changes to offshore allowances, and the necessary steps to rectify any transgressions.

Understanding the SDA

South Africa’s exchange control regulations allow South African individuals and expatriates who are tax residents, over the age of 18 to transfer or spend up to R1-million per calendar year offshore without requiring prior approval from the South African Revenue Service (SARS) or SARB. 

The SDA covers amongst others, various permissible offshore activities, including:

• Travel expenses abroad;
• Gifts and loans to non-residents;
• Maintenance transfers to family members living outside South Africa;
• Offshore investments;
• Education and medical costs in foreign countries.

Although the SDA covers these common transactions, the rising use of credit and debit cards for international purchases also contribute to the cumulative foreign currency transactions.

Important Note: Foreign Card Spend Counts Toward your SDA

In light of this development, South African individuals are strongly urged to remain fully informed about the scope and application of the SDA, as many remain unaware that foreign credit and debit card spend including online purchases in foreign currency, also count towards the annual SDA limit of R1-million.

Many South Africans unintentionally exceed their SDA limits because they do not realise that swiping their cards abroad or making foreign online purchases is reported by their bank and deducted from their SDA balance. 

This seemingly minor oversight can result in serious administrative action by FinSurv, including restrictions on future foreign transactions.

Travel Allowance Also Forms Part of the SDA

Note that foreign travel expenses, whether through purchasing foreign currency before departure or using South African credit/debit cards abroad, are fully included in the R1-million SDA limit.

There is no separate or additional “travel allowance” for adults; all foreign currency expenditure related to travel forms part of the SDA limit. Minors under the age of 18 have a distinct travel allowance of R200 000 per calendar year.

What to do Should you Breach Your SDA Limit

If an individual breaches the SDA limit, they are required to:

• Provide written confirmation within 30 days acknowledging the transactions listed by their bank (typically provided in an Excel statement);
• Submit a detailed written explanation outlining the reasons for exceeding the allowance;
• Await a decision from FinSurv, which may impose penalties or foreign exchange restrictions if the response is deemed inadequate.

Should a timely and sufficient response not be received, Authorised Dealers (banks) are obliged to block the individual from entering into any further foreign exchange transactions involving the export of capital.

Continued non-compliance could result in administrative or legal action under South Africa’s Exchange Control Regulations.

Important Regulatory Change: Introduction of the AIT Process

As part of ongoing reforms to South Africa’s exchange control system, the Foreign Investment Allowance (FIA) previously allowing individuals to transfer up to R10-million offshore with a tax clearance was replaced by the Approval International Transfer (AIT) TCS PIN process.

Under the AIT TCS PIN process, all offshore transfers exceeding the R1-million SDA limit require a valid Tax Compliance Status (TCS) PIN from SARS and may be subject to further SARB approval procedures. This regulatory change removes the former two-tier system (SDA + FIA) and introduces a more controlled and uniform approach to large offshore fund transfers.

It must be noted that the AIT TCS PIN is required for every cent transferred offshore by non-tax residents. This excludes the income in nature type of funds that will only require a Good Standing TCS PIN.

Consequences of SDA Breaches

Non-compliance may result in:

• Immediate foreign exchange restrictions applied by banks across all Authorised Dealers;
• Potential administrative penalties or fines imposed by FinSurv;
• Damage to personal financial reputation and disruption of future offshore transactions, including travel, education, and investment plans.

The notification drive from FinSurv is a wake-up call for all South African residents who use their cards abroad or send funds offshore. What may seem like every day online purchases can accumulate and inadvertently breach the SDA limit, carrying serious consequences.

How to Avoid SDA Breaches

FinSurv and financial professionals recommend that South African residents take the following steps to ensure ongoing compliance:

1. Track all Foreign Currency Transactions:
Include all forex transfers and foreign credit/debit card spend when calculating remaining SDA limits.

2. Consolidate Transactions:
Use a single Authorised Dealer or bank to centralise foreign currency activities, ensuring accurate annual tracking.

3. Plan for Larger Transfers via Approval International Transfer (AIT) TCS PIN:
If you intend to exceed the R1-million SDA limit, apply for an AIT TCS PIN in advance to avoid any breaches.

4. Seek Professional Guidance:
Consult exchange control specialists or financial advisors if you are unsure about your offshore transfer obligations.

Remaining informed, vigilant, and compliant is essential to safeguard your financial freedom and avoid potential penalties or restrictions. Always seek professional advice to navigate complex regulatory requirements, ensure compliance, and make informed decisions tailored to your specific circumstances.

Written by Lovemore Ndlovu, Head of SARB Engagement and Expatriate Compliance at Tax Consulting SA