Time is running out for South African taxpayers who have not yet disclosed their overseas assets, according to Ilsa Groenewald, Associate Director for tax at the Durban office of BDO South Africa, the audit, advisory and tax firm.
The good news is that they will have the opportunity to voluntarily disclose their offshore assets and income and any exchange control contraventions that occurred prior to 29 February 2016 in a special window period from 1 October 2016 to 31 March 2017.
This follows an announcement by the National Treasury’s Minister of Finance in February this year.
“The aim is once again to encourage compliance amongst South African taxpayers and to give them the chance to get their house in order and regularise their exchange control affairs,” says Groenewald.
There were three substantial incentives to apply for relief under this special Voluntary Disclosure Programme (VDP) in respect of offshore assets and income, she explained.
“Interest accrued on offshore assets will only be charged from 1 March 2010 onwards. Also, if the application is successful, no under-statement penalties will be levied and SARS will not pursue criminal prosecution for this tax offence.”
Another benefit is that only 50% of the total amount applied for will be included in the taxpayer’s taxable income and subject to normal tax rates.
Groenewald said that individuals and companies were eligible to apply for the special VDP.
“Trusts do not qualify but settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts may participate if they elect to have the trust’s offshore assets and income held by them.”
If SARS was aware of a pending audit or investigation in respect of anyone’s foreign assets or foreign taxes, they would not be eligible to apply for the special VDP, Groenewald said.
“However, SARS will still accept a VDP application if the scope of the audit is for a different tax, for example, if you are applying for relief of income tax and SARS is conducting a PAYE audit.”
“It should be remembered that the global standard for the automatic exchange of information between tax authorities will kick into gear in the 2017 tax year. Any amount which SARS obtains using the international exchange of information, will not qualify for this special VDP.”
Groenewald said that levies would be charged on the assets declared, based on the current market value as at 29 February 2016. This would amount to 5% of the leviable amount if the funds were repatriated to South Africa and 10% if kept offshore.
“The levy must be paid from foreign-sourced funds. Should you wish to pay your levy from a South African sourced fund; SARS will charge an additional 2% of the leviable amount.”
“SARS has made it clear that individuals will not be able to deduct their R10m foreign capital allowance, or any remaining portion of it, from the leviable amount. The levy may also not be reduced by any fees or commission.”
It was apparent that SARS was encouraging South African taxpayers to invest in their country, she said.
Groenewald went on to say that the Financial Surveillance Department of the South African Reserve Bank (FinSurv) had taken a firm stand and that, if anyone wished to voluntarily make a full disclosure directly to them, outside the framework of this special VDP, then they would have to pay a settlement ranging from between 10% and 40% of the current market value of their unauthorised foreign assets.
Determination of the final settlement amount would also depend on whether they elected to retain their funds overseas or repatriate them.
“It is worth bearing in mind that should a South African taxpayer not apply for this special VDP, and SARS and FinSurv discover any undisclosed assets, then they will face the full force of the law,” she says.
Groenewald explained that all applications for relief from exchange control under this special VDP are to be made according to the Provisions of Regulation 24 of the Exchange Control Regulations of 1961.
“SARS and the South African Reserve Bank are working together to ensure that these applications are assessed through one joint process. Full details of the compliance requirements will be made public later in the year, as the window period for this VDP only opens in October,” she says.