The rules on the distribution of funds from a resident trust to a non-resident trust in South Africa have been evolving over recent years, with a critical change taking effect from the 2025 tax year (starting 1 March 2024). The South African Revenue Service (SARS) has released updated guidance regarding the distribution of funds from South African resident trusts to offshore trusts. This is in line with the recent developments in exchange control policy by the South African Reserve Bank (SARB), which have relaxed some of its exchange control regulations.  

What are the key updates for trust-to-trust distributions in South Africa?

Tax Treatment  

Previously, the “conduit principle” allowed a South African resident trust to distribute income to a non-resident beneficiary, including a non-resident trust, and be taxed in the hands of the beneficiary. However, this principle now only applies to South African tax-resident beneficiaries following the amendment of Section 25B of the Income Tax Act. This means that resident trusts are now responsible for paying income tax at a flat rate of 45 per cent or capital gains tax at an effective rate of 36 per cent on any amounts distributed to an offshore trust. 

Exchange Control and Compliance 

Historically, SARS does not approve the release of funds when resident trusts make distributions to non-resident trusts. In response to queries about the subject, SARS has formally clarified its position on these distributions, confirming that it now permits distributions from local trusts to offshore trusts under strict compliance with tax and regulatory requirements.  

SARS will only consider the request for a resident trust to make a distribution to an offshore trust and will issue a Manual Letter of Compliance (MLC), provided the following conditions are met:  

• the offshore trust must be a named beneficiary of the local trust; 
• the distribution aligns with the terms and conditions of the trust deed of the local trust; and 
• the local trust must be fully tax compliant and able to demonstrate that all relevant tax obligations have been or will be settled in full.  

The approval process has two steps: First, the trustees of the South African resident trust must obtain tax clearance from SARS in order to receive a “letter of compliance,” confirming that the trust’s tax status is in good standing. Second, the trust must obtain exchange control approval from SARB to ensure the transfer complies with the country’s exchange control regulations.  

What are the restrictions?

Although the recent changes to South Africa’s exchange control environment mark a positive evolution, with some claiming the increased “ease” and “simplicity” of the process, cross-border trust distributions are still a highly technical process. It requires careful alignment between SARS, SARB, trust deeds and international law.  

How we can help

With SARB’s recent relaxation of exchange control policies, any trustee considering a distribution to an offshore trust in 2025 has the opportunity to take advantage of the greater flexibility in the management and transfer of cross-border wealth. However, due to the complexity of the process and requirements, it is crucial to seek advice and guidance from tax professionals and legal experts to ensure full compliance with tax laws and exchange control regulations.  

Planning to distribute funds through your South African trust? Get it done right with Bolder. Contact us today. 

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.