Tax Clearance Certificate and Tax Compliance Status are two terms you’ll often come across when you decide to emigrate from South Africa or emigrated for a while ago. This can be confusing for those who just want to ensure they are tax compliant after they leave.

In short, a Tax Clearance Certificate used to be issued as a verification by SARS that the associated taxpayer’s tax affairs were compliant and up to date. However, after the introduction of the Tax Compliance Status system in 2016, the Tax Clearance Certificate system eventually fell away and is no longer used or valid for use. SARS stopped issuing the Tax Clearance Certificate on 2 November 2019.

Tax Clearance Certificate vs Tax Compliance Status

The main difference between the Tax Clearance Certificate and the Tax Compliance Status is that the first is paper-based and the second is digital.

SARS’ main concern with the Tax Clearance Certificate was that, because it was a printed document, it only reflected a taxpayer’s compliance at the time of issue. If that status subsequently degraded due to non-compliance, the certificate was essentially invalid but could still be presented to third parties as proof of compliance.

The adoption of digital technologies allowed SARS to develop the new Tax Compliance Status system, which is a fully online service that represents a taxpayer’s current compliance status in real time.

Instead of being issued with a Tax Clearance Certificate, applicants receive a Tax Compliance Status PIN (TCS PIN) from SARS. They can then share this PIN with third-parties who require the taxpayer to be compliant before transacting with them.

Tax Clearance Certificate and financial emigration

The Tax Clearance Certificate was an important component in the pursuit of financial emigration, as well as other financial and business applications.

Previously, financial emigration included receiving approval from the South African Reserve Bank (SARB) for the transfer of funds out of the country in terms of foreign exchange control. This was only possible after the taxpayer presented SARB with their Tax Clearance Certificate.

Today, SARB approval is no longer required, so financial emigration focuses more on ceasing South African tax residency and the release of one’s retirement funds for transfer to their foreign bank account. Evidence of tax compliance required by third parties during and after this process can be satisfied with the taxpayer’s TCS PIN.

How does a Tax Compliance Status work compared to a Tax Clearance Certificate?

Being a purely paper document system, the Tax Clearance Certificate was simply held by the taxpayer and presented to a third party on request. This meant it was subject to potential damage or loss, then requiring the taxpayer to apply for a replacement. This could take a while to be approved and physically delivered or collected from a SARS branch.

Under the new Tax Compliance Status system, the taxpayer furnishes the requesting third party with a TCS PIN. This PIN can be applied for electronically on the ‘My Compliance Profile’ page of their eFiling account.

A unique TCS PIN can be issued for each new request after approval of the application by SARS. Compared to a Tax Clearance Certificate, approval is quicker, digital delivery immediate and the risk of loss or damage is negated.

The requestor can then access the taxpayer’s eFiling profile and view their compliance status as it stands on that date, not the date the PIN was issued. For confidentiality, all other information and functionality of the taxpayer’s eFiling profile will be hidden and unavailable to the third party.

Tax compliance for financial emigration

Although a Tax Clearance Certificate is no longer required for exchange control purposes when emigrating, tax compliance is still essential. The first step in ceasing tax residency is for the taxpayer to prove they are compliant.

Applying for a Tax Compliance Status is not a simple matter of referring SARS to one’s existing tax records. In the case of emigration, taxpayers are required to provide SARS with a statement of assets and liabilities for the past 3 years, a capital gains tax (CGT) calculation on the deemed disposal of certain assets, and a horde of related documents. Without professional guidance, compiling this body of information could prove overwhelming.

Proving tax compliance

Obtaining and using a Tax Clearance Certificate was a purely manual process that required a taxpayer to be present to furnish the document to a third party. In contrast, applying for and using a Tax Compliance Status is much easier through the provision of a TCS PIN.

However, when emigrating, this does not reduce the amount of work required before one’s application is approved. So, although the Tax Clearance Certificate was more problematic, taxpayers leaving or who have already left South Africa must still be prepared for a long process to prove they are indeed compliant with SARS.