On 24 February 2016, Minister of Finance Pravin Gordhan announced a Special Voluntary Disclosure Programme (SVDP) for individuals and companies to regularise both their tax and exchange control affairs for a limited period of six months starting on 1 October 2016 and closing on 31 March 2017.
The South African Revenue Service (SARS) and South African Reserve Bank (SARB) will work together to ensure that applications for the SVDP are assessed through a joint process covering both tax and exchange control non-compliance ahead of the introduction of the new global standard for the automatic exchange of information in 2017.
The SVDP will be open to individuals and companies provided that no audit or investigation in respect of foreign assets or foreign taxes is underway or pending. Amounts in respect of which SARS has obtained information under the terms of any international exchange of information procedure will also be ineligible.
South African trusts will not qualify under the SVDP, but settlors, donors, deceased estates and beneficiaries of foreign discretionary trusts may participate if they elect to have the trust’s offshore assets and income deemed to be held by them personally.
The benefit of making use of the SVDP is that the disclosing individual or company will be subject to lower penalties and taxes than would otherwise be the case. Where an SVDP application is successful, no understatement penalties will be levied and SARS will not seek a criminal prosecution for a tax offence.
The proposed reliefs are as follows:
- Only 50% of the total amount used to fund the acquisition of offshore assets before 1 March 2015, if the applicant failed to comply with a tax Act administered by SARS, will be included in taxable income and subjected to normal tax;
- Investment returns on the offshore assets received or accrued prior to 1 March 2010 will be exempt from normal tax but returns from 1 March 2010 onwards will be included in taxable income in full and subjected to normal tax;
- Interest on tax debts arising from the disclosure of amounts used to fund the acquisition of offshore assets or investment returns in respect of those offshore assets will commence only from 1 March 2010.
The SDVP will also apply to exchange control contraventions that occurred before 29 February 2016. However, South African residents currently under investigation by the Financial Surveillance Department (FinSurv) of SARB will not qualify.
Successful applicants for exchange control relief may have to pay a levy based on the current market value of the foreign assets as at 29 February 2016. The following percentages will apply:
- 5% of the leviable amount if the regularised assets or sale proceeds are repatriated to South Africa; and
- 10% of the leviable amount if the regularised assets are kept offshore.
The levy must be paid from foreign-sourced funds. Where insufficient liquid foreign assets are available and local assets are used to settle the levy, an additional 2% will be added. Individuals will not be allowed to deduct their R10 million foreign capital allowance (or any remaining portion) from any leviable amount.
South African residents who do not apply for exchange control relief under SVDP and opt to make disclosure voluntarily directly to FinSurv will, at FinSurv’s discretion, pay a settlement ranging from 10% to 40% of the current market value of their unauthorised foreign assets. Residents who do not make use of the SVDP may face the full force of the law and FinSurv is mandated, in appropriate circumstances, to recover the full amount of the contravention.
For more information, please contact:
Managing Director – Sovereign Trust (SA) Limited
Phone: +27 21 418 2170