In 2003 SA residents that held funds and money in undisclosed offshore accounts or were involved in investment structures that were in contravention of Exchange Control Regulations were provided an opportunity to come clean.
Applicants were then provided with an opportunity to ‘come clean’ if they:
- declared the market value of foreign assets at 28 February 2003;
- paid income tax on their foreign income for the tax year ended 28 February 2003; and,
- subject to certain non-punitive relief measures, paid a foreign exchange control levy on the value of the foreign assets.
Then, in February 2016 it was announced that SA residents will again be afforded an opportunity to regularise their tax and exchange control affairs through a Special Voluntary Disclosure Programme (SVDP) if they hold any unauthorised foreign investments or acquired foreign assets with undeclared income.
Whilst the relevant legislation has not been signed into law yet, the window period for applications opened on 1 October 2016 and will run until 30 June 2017.
The process, however, may not be as simple as one would think and applicants may have to follow multiple processes to regularise their affairs.
The South African Reserve Bank (SARB) has published the final terms of the exchange control Special Voluntary Disclosure Programme (SVDP) announced in Finance Minister Pravin Gordhan’s 2016 Budget Speech.
The SVDP is being introduced under the auspices of the South African Revenue Service (SARS) and the Financial Surveillance Department of the South African Reserve Bank (FinSurv) through a joint SVDP unit.
Unlike the 2003 process, when the writer was required to travel from Cape Town with a suitcase full of applications for delivery before the application closing date, applications will now be filed electronically via the SARS eFiling platform.
The process provides for separate applications where applicants can apply for either the tax or the exchange control relief, or both. Approval of applications will be subject to the payment of
- an Exchange Control Levy of
- 5% where assets are repatriated to SA;
- 10% if assets are retained offshore and the levy is paid from foreign funds; or
- 12% if assets are retained offshore and the levy is paid from SA funds, and
- an income tax charge, by including in the applicant’s 2015 income tax assessment an amount equal to 40% of the highest aggregate market value of foreign assets derived from undeclared income at the end of any tax year ended between 1 March 2010 and 28 February 2015.
During the SVDP period the permanent VDP process remains available for taxpayers that hold foreign assets that were acquired with seed funds which were not taxable, but where taxpayers did not declare the investment returns on the foreign assets in their annual returns.
For exchange control purposes there are also measures available whereby applicants can apply for administrative relief outside of the SVDP in respect of unauthorised foreign assets acquired through certain means without being subjected to the payment of a levy. These, amongst other, relate to unauthorised foreign assets held at 29 February 2016 that resulted from-
- assets inherited prior to 17 March 1998, but not declared to SARB;
- income earned before 1 March 1997 from working abroad;
- assets inherited from SA residents where the assets were previously held by the deceased in compliance with Exchange Control Regulations; or
- assets held by immigrants that were not disclosed to the SARB.
Persons to whom the above applies will have to make full disclosure to an Authorised Dealer and provide proof of the market value of the applicable foreign assets as at 29 February 2016. If they did not declare the investment income on these assets in their income tax returns they will have to apply for tax relief through the permanent VDP process.
Income tax, donation tax and Estate Duty relief offered under the tax SVDP is final in respect of all undeclared income that funded the foreign assets and all investment income and other tax events relating to the foreign assets for all tax years up to and including 28 February 2015.
If an applicant does not qualify for the SVDP and has to apply for relief through the permanent VDP process, applications will have to be made in respect of all prior tax years during which income was not disclosed. The challenge is that applicants will have to provide proof for all these years and there is no definitive cut-off date, meaning that the application may have to go back many years. The income tax and interest thereon will remain payable for all years covered by the application. Under the permanent VDP, relief is basically limited to the waiver of under-statement penalties and exemption from criminal prosecution.
Applicants that have foreign assets that have been funded by both undeclared income and after tax funds may have to apply for relief under:
- the SVDP, in respect of the portion of the assets that were funded by the undeclared income and the related investment income or capital gains thereon, and
- the permanent VDP in respect of income / capital gains earned on the portion of the assets that were funded by after tax funds.
Considering the different processes that apply, applicants will have to carefully consider their options and may well be required to make multiple applications depending on their specific facts and circumstances.
Under the global automatic exchange of information agreements, SARS expects to receive third party financial information of assets and funds held by SA residents in foreign jurisdictions from September 2017. For SA residents that hold undisclosed foreign investments, the period to 30 June 2017 will be the last time to come clean before the information will be provided to SARS by third parties.
For further information or for assistance in understanding your own SVDP requirements, please contact us.