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New Tax and Exchange Control Amnesty

17 Jun 2016

Since the Tax Administration Act, 2011 came into force on 1 October 2012, a permanent Voluntary Disclosure Programme is in place for taxpayers wanting to voluntary declare past tax transgressions to the South-African Revenue Services (SARS).  However, if such transgression also included a transgression of Exchange Control Regulations, it was unclear as to what the exchange control implications of such a voluntary tax disclosure would be. 

Now at last this uncertainty has been addressed with two bills published on 24 February 2016 and which must be read with the Regulation 24 of the Exchange Control Regulations of 1961. 

These bills, read with Regulation 24, are offering an opportunity to South African residents to regularise their unauthorised foreign assets by making a voluntary disclosure to a special unit.  This unit will be known as the Special Voluntary Disclosure Programme (SVDP) Unit – a unit to be jointly operated by the FinSurv and SARS.

Treasury warned that, with a new global standard for the automatic exchange of information between tax authorities providing SARS with information regarding such offshore assets and income from 2017, time is running out for taxpayers who have not disclosed assets abroad.

WHO CAN APPLY

  • A natural person, close corporation or a company which is a resident;
  • Deceased estates;
  • Beneficiaries of foreign discretionary trusts if they elect to have the trust’s offshore assets and income deemed to be held by them;
  • or related party to such person which holds unauthorised foreign assets.   

It is of significance that a resident trust cannot apply for relief. 

THE RELIEF GRANTED

Income tax relief

  • 50% of the total amount used to fund the acquisition of unauthorised assets acquired before 1 March 2015, will be taxable;
  • All investment returns received before 1 March 2010 will be exempt. 
  • Interest on the tax debt will only be calculated from 1 March 2010. 
  • No understatement penalties will be levied if the voluntary disclosure is successful.
  • No criminal prosecution.

Income tax relief in respect of non-resident discretionary trusts

The donor or beneficiary may elect that the unauthorised foreign asset so held by the non-resident discretionary trust, be deemed to be held by that person.  This will have income tax and capital gains tax consequences for such an individual.    

Exchange Control relief

The VDP will apply to all residents, both individuals and entities, and in respect of exchange control contraventions that occurred prior to 29 February 2016. Residents who are the subjects of current and/or pending investigations by FinSurv will not qualify for relief under the VDP. .

The relief proposed in terms of the SVDP will be as follows:

  • The applicant can elect to repatriate the unauthorised foreign asset or leave it overseas.  Should it be left offshore, a levy of 10% (ten percent) of the market value of the foreign assets or structure as at 29 February 2016 will be payable. Should it be repatriated to South Africa, the levy will reduce to 5% (five percent);
  • The levy must be paid from foreign-sourced funds. Where insufficient liquid foreign assets are available, an additional 2% levy will be added to the extent that local assets are used to settle the levy.

HOW TO APPLY

SVDP applications will be submitted by using the SARS e-filing platform. 

Important dates to remember

  • Only transgressions prior to 1 March 2016 will be considered. 
  • The disclosure period will apply from 1 October 2016 until 31 March 2017.

THE WAY FORWARD

Should you be unsure as to whether you will qualify in terms these rules, it will be possible to submit an anonymous application and request a non-binding opinion regarding the eligibility for relief.   We will keep you up to date, as soon as the final legislation is enacted.  Please contact Tenk Loubser at tenk@exceed.co.za for further information.

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