Tax experts challenge ongoing restrictions on rental income and directors' fees in South Africa

The continued restrictions on rental income and directors’ fees remain unjustified, continuing to deter foreign investment and undermine South Africa’s competitiveness.

This is according to the Institute for International Tax and Finance, which says it welcomes the South African Reserve Bank’s (SARB) decision to partially reverse its controversial new exchange control requirements for non-residents. 

“This is a positive development that addresses some of the most egregious aspects of the October changes,” said Michael Kransdorff, director of the Institute for International Tax and Finance.

“SARB deserves credit for recognising the legitimate concerns raised by the investment community and for taking corrective action.”

Revised guidance

Following sustained criticism from market participants and investor advocacy groups, including the Institute for International Tax and Finance, SARB’s Financial Surveillance Department issued revised guidance last week, partially rolling back what has been described as stringent requirements introduced in October 2025.

Under the revised framework, non-resident entities will no longer be required to obtain an application for international transfer (AIT) tax compliance PIN from SARS for income transfers.

Additionally, dividends from listed companies and interest from regulated financial institutions can now be transferred to non-resident individuals without requiring tax clearance.

Significant issues still remain

However, the South African-based tax and financial emigration specialist practice says significant problems remain. Under the revised framework, non-resident individuals must still obtain AITs from SARS in respect of certain categories of income, most notably:

• Rental income: requiring an AIT PIN from the non-resident beneficiary.
• Directors’ fees: requiring either a manual letter of compliance or an AIT PIN from the beneficiary.
• Members’ fees: requiring either a manual letter of compliance or an AIT PIN from the beneficiary. 

In addition, Kransdorff says various categories of income now require tax compliance status (TCS) certificates of good standing from the South African payer, including dividends from unlisted companies, interest from unregulated entities, and trust distributions.

“The continued discrimination against rental income and directors’ fees is arbitrary, economically harmful, and administratively unjustifiable,” Kransdorff says.

“Why should a non-resident earning rental income face weeks or months of bureaucratic delays in accessing funds, while a non-resident earning interest or consulting fees can remit income immediately? This distinction has no rational policy basis.”

The treatment of directors’ fees is particularly difficult to defend. In most cases, PAYE is already withheld at source by the South African company, ensuring that SARS has collected the tax before the funds are remitted.

“SARS has already collected their taxes by withholding PAYE, yet non-resident directors must still endure the AIT process to access their net fees,” Kransdorff notes.

“There is no additional tax risk to mitigate once PAYE has been withheld at source. This is pure bureaucracy serving no revenue protection purpose.”

No de minimis threshold for non-residents

The practice says the most glaring inequity in the current framework is the complete absence of a de minimis threshold for non-residents.

It says South African residents benefit from a R1 million annual single discretionary allowance (SDA) that allows them to remit funds abroad without SARS tax clearance. No equivalent protection exists for non-residents.

As a result, the director says a non-resident property investor earning R250,000 per year in rental income faces the same onerous AIT requirements as someone earning R2.5 million, including extensive documentation, SARS processing times of at least 21 business days (often longer in practice) and professional compliance costs.

“Few peer jurisdictions impose clearance requirements on small, routine income flows to non-residents,” Kransdorff says.

“The absence of an annual allowance for non-residents is fundamentally unfair and creates a hostile investment environment for individuals who cease to be South African tax residents but retain legitimate investments in South Africa.”

Property investor concerns

The Institute for International Tax and Finance says the practical consequences of the revised rules are severe for thousands of South Africans who have emigrated but retained property in South Africa, relying on rental income to support themselves abroad.

It says under the current framework, an emigrant living in London, Sydney, or Dubai who receives monthly rental income from their South African property must apply for AIT clearance before remitting those funds.

Crucially, the AIT process requires proof that the funds are already available in a South African bank account before approval for transfer is granted.

“This creates a structurally impossible situation,” Kransdorff says. “An emigrant receiving monthly rental income cannot access those funds for weeks while SARS processes the AIT. If they rely on that income for overseas living expenses, they face recurring cash-flow crises.

"The inevitable result will be forced asset disposals-exactly the opposite of what the South African economy needs.”

Suggestions

The Institute for International Tax and Finance calls on SARB and the National Treasury to complete the reform process by establishing genuine parity between residents and non-residents:

1. Introduce a R1 million annual single discretionary allowance for non-residents

Non-resident individuals should be eligible for the same R1 million annual allowance as residents for remitting funds offshore without tax clearance. This would:

• Remove bureaucratic barriers for smaller investors.
• Reduce administrative pressure on SARS.
• Signal that South Africa wants emigrants to retain assets and capital ties in the country.

2. Eliminate income-type discrimination

If tax compliance checks are required above the R1 million threshold, they should apply consistently across income categories.

The current distinction between rental income (AIT required) and interest income (no AIT required), or directors’ remuneration (AIT required) and consulting fees (no AIT required), lacks any coherent policy justification.

3. Streamline the AIT process

For amounts exceeding the R1 million threshold but below R10 million, SARS should commit to:

• Maximum seven-day turnaround times.
• Simplified and proportionate supporting documentation requirements.

Finally, Kransdorff says: “The partial retreat shows that SARB recognises the damage caused by the October changes. But the job is only half done. Rental income and directors’ fees should be treated the same as other income streams.

"Non-residents deserve the same annual discretionary allowance as residents. South Africa deserves a rational, investor-friendly exchange control framework.”

The Institute for International Tax and Finance says it will continue to advocate for these essential reforms until true parity is achieved between residents and non-residents. “Our country’s economic future will be enhanced by getting this right.”

At the end of November, DG Properties said South Africa continues to attract international buyers with its lifestyle appeal, strong rental markets and favourable exchange rate. The company specialises in buying, selling and renting properties, says that from coastal homes with sweeping views to secure lifestyle estates and commercial opportunities, SA has a lot on offer.

“But before signing an offer to purchase, foreign investors need a clear understanding of how property laws, residency rules and tax obligations work.” 

DG Properties said the good news is that South Africa places very few restrictions on who can own property.

“Non-residents, permanent residents, expatriates and foreign companies are all allowed to purchase real estate. The only real limitation is that foreign buyers can’t acquire agricultural land designated as farmland without special permissions, and they must comply with local exchange control rules.”

Independent Media Property