Cross-Border Trust Distributions: A Practical Guide for Advisers

Distributing money from a South African trust to an offshore trust or an overseas beneficiary is common in international estate and wealth planning but the process is tightly regulated. This short guide breaks the rules into simple steps you can use to advise clients and explain the issues clearly.

The basic rules that apply:

• SA trusts cannot simply invest offshore. They don’t have the same foreign investment allowances as individuals.
• They can, however, distribute capital offshore but only through a formal, documented process that meets tax, trust-deed and exchange-control requirements.
• Similarly, a South African trust may distribute funds to overseas beneficiaries if the necessary compliance, documentation, and tax obligations are satisfied.

In short: you can’t simply have the South African trust invest abroad, but you can move value overseas via a regulated distribution mechanism.

Key Conditions for Offshore Trust Distributions

For a South African trust (resident trust) to make a capital distribution to an offshore trust, this is what you should check:

1. Is the offshore trust a named beneficiary? If not, the distribution is usually not permitted.
2. Is the SA trust tax-compliant and resident? All SARS filings must be up to date.
3. Are taxes on the distribution settled? SARS must be satisfied before exchange control approval.

These requirements ensure that the transaction is legal, transparent, and traceable from a tax and regulatory perspective.

SARB (Reserve Bank) and SARS (Revenue Service) approvals

• A Letter of Compliance from SARS is needed before applying to the SARB.
• The SARB will look at ultimate beneficial owners (UBOs) of both trusts, verify tax compliance, and check the documentation.
• The SARB review can take 6 to 8 weeks and its approval is valid for 12 months.

Once approved, funds must be converted (not paid in Rands) and transferred to the offshore trust’s bank account.

Key notes

• SARB approval is not guaranteed and can take several weeks to months to process.
• Approval, when granted, is valid for 12 months.
• Non-cash (asset) distributions e.g. shares or property — remain a grey area and may require specialist advice.

Capital Distributions when the recipient is an overseas individual (beneficiary)

When the recipient is an overseas beneficiary (rather than an offshore trust), different scenarios and rules apply:

South African tax resident living abroad (has not tax-emigrated)

• Distribution must be paid into their SA resident bank account.
• They may then transfer funds offshore using their personal allowances: the Single Discretionary Allowance (up to R1m/year) or the Foreign Capital Allowance (up to R10m/year subject to SARS approval).

South African citizen who has formally emigrated (tax emigration complete)

• The distribution should be made to a South African “emigrant” bank account.
• Required documentation includes proof of tax emigration, approval for an international transfer (AIT) from SARS, foreign passport, and proof of foreign residence.

Bona fide non-resident beneficiary

• If the beneficiary has permanently severed SA financial ties, distributions can be paid to a non-resident account (subject to the structure).
• Exchange control approval is required before funds go offshore.

For inter vivos trusts (created while the settlor is alive), it’s common to use a local account as the channel but SARB approval remains necessary.

Documentation Checklist for Advisers

To guide your clients effectively, ensure the following are ready:

1. Copy of trust deed
2. Trustee resolution authorising distribution
3. Masters of the High Court letter or authority
4. Up-to-date trust financial statements
5. Beneficiary’s proof of identity, proof of foreign residence (if applicable)
6. Bank statements showing flow of funds
7. Proof of tax emigration or non-resident status (where relevant)
8. SARS documents (Letter of Compliance, AIT approval)
9. A well-argued motivation letter to accompany the SARB application

How to explain risk and timing to clients (phrasing that helps)

• “This isn’t a routine bank transfer, it’s an exchange-control application that tests legal, tax and beneficial-ownership details.”
• “Start the paperwork early: SARS checks and SARB reviews take time and any missing documents cause delays.”
• “If tax or UBO issues aren’t clean, SARB may refuse so full transparency is essential.”

Why advisors matter here

Clients rely on you to translate legal and tax obligations into a clear plan: which account to use, what documentation is needed, who pays tax, and realistic timing. Understanding the correct route and helping clients prepare early protects them from unnecessary risk, delay, or regulatory scrutiny.

If you’re preparing an application for a client, doing the groundwork (trust deed checks, SARS compliance, clear documentation) before applying to the SARB can shorten processing time and significantly increase the likelihood of approval.

Cross-border trust distributions can be complex and time-consuming but you don’t have to navigate them alone. Contact us for guidance on preparing compliant applications, coordinating with SARS and the SARB, and managing the foreign exchange process from start to finish.