Special Voluntary Disclosure – Foreign Assets

Eugene du Plessis Eugene du Plessis

The Minister of Finance announced in his 2016 Budget that voluntary disclosure rules will be relaxed for six months from 1 October 2016 to 31 March 2017 to allow taxpayers with undisclosed foreign assets an opportunity to become compliant.

Unlike the concession that was offered in 2004, the special voluntary disclosure is not an amnesty but rather a last chance to regularise one’s affairs and still obtain some relief from penalties.

The special voluntary disclosure will cover not only tax but also Exchange control transgressions and will be controlled by a Special Voluntary Disclosure Programme Unit operated by the South African Revenue Service (SARS) and the Financial Surveillance Department of the South African Reserve Bank (FinSurv).

The legislation and rules governing the special voluntary disclosure are yet to be finalised. However, draft legislation regarding the tax requirements have been issued for public comment.

Exchange control applications are to be made according to the provisions of Exchange Control Regulation 24 (Regulation 24) although specific guidance has not yet been issued.

Based on the current draft legislation and taking into account the provisions of Regulation 24, the following overarching guidelines appear to govern the special voluntary disclosure:

Tax voluntary disclosure

  • Individuals, deceased estates, insolvent estates, close corporations and companies may apply.
  • The application must be made in terms of the Voluntary Disclosure Programme provisions contained in the Tax Administration Act, No. 28 of 2011.
  • Trusts are precluded from applying.
  • Persons may not apply for the special voluntary disclosure relief if they are aware of a pending audit or investigation in respect of foreign assets or taxes thereon or if an audit or investigation in respect of foreign assets or taxes thereon has commenced. An application may also not be made in respect of foreign assets already disclosed to SARS under an international tax agreement.
  • Foreign dividends, dividends, interest, rental and other investment income received or accrued after 1 March 2010 in respect of the disclosed foreign assets must be disclosed and will now be subject to tax.
  • Any foreign dividends, dividends, interest, rental and other investment income received or accrued before 1 March 2010 in respect of the disclosed foreign assets will be exempt from tax. However, 50 per cent of the total amount that was used to fund the acquisition of assets (i.e. the capital) situated outside South Africa that were acquired before 1 March 2010 will be included in the applicant’s taxable income in the year of assessment that ends prior to 1 March 2010. 

Note: The latter provision can be quite punitive as there is a risk of subjecting the capital funds to tax twice as previously taxed amounts used to fund the acquisition of foreign assets may now be subjected to tax again. We are hoping that this issue will be clarified in the final legislation, and one would expect that the double taxation provision would be removed.

  • A donor (or the deceased estate of a donor) or beneficiary in relation to a discretionary non-resident trust may elect that the assets that were held by the discretionary trust on 28 February 2015 must be deemed to be held by that person. In this way, assets not directly held by the applicant but through a foreign discretionary trust can also be regularised.
  • The election may be made by the applicant where the non-resident trust acquired the asset by way of a donation or the assets were derived from any amount not declared to SARS as required by the Estate Duty Act or the Income Tax Act and the asset has not yet vested in a beneficiary of the trust at the time the election is made.
  • Where the election is made, the applicant will be deemed to have held the assets from the date on which the trust acquired the assets, to have received the same income and incurred the same expenditure in respect of that asset as received or incurred by the trust and to have dealt with the asset in the same manner as the trust dealt with it.
  • The deemed holding of the assets by the applicant will continue to apply until the asset is disposed of by the trust, the person is deemed to have disposed of the asset in terms of the Income Tax Act or in the case of an applicant that is a deceased estate, company or other juristic person, the day before the person ceases to exist by operation of law (e.g. deregistration of a company).
  • When the deemed holding ceases to apply, the person will be deemed to have disposed of the asset at the market value thereof on the date of disposal.
  • Whilst the deemed holding applies, the attribution provisions of sections 7(5), 7(8) and 25B of the Income Tax Act and paragraphs 70, 72 and 80 of the Eighth Schedule to the Income Tax Act will not apply to such assets.
  • Where an application for voluntary disclosure relief is approved, the applicant will be required to enter into a voluntary disclosure agreement with SARS.
  • The “price” that will be paid for the voluntary disclosure relief will include all applicable taxes on the amounts required to be disclosed together with interest on such taxes. However, no understatement penalty, administrative non-compliance penalty or other penalties (other than penalties for late submission of tax returns) will be imposed.

Exchange control voluntary disclosure

FinSurv has indicated that the voluntary disclosure applications are to be made in accordance with the provisions of Regulation 24. Although no other specific guidance relating to the special voluntary disclosure has yet been issued by FinSurv, The Minister of Finance did provide some detail in relation to the Exchange control voluntary disclosure in his 2016 Budget Speech.

The website of the South African Reserve Bank indicates that individuals, sole proprietors, partnerships, deceased estates, insolvent estates, South African trusts, former residents, close corporations and companies will be entitled to submit applications for voluntary disclosure relief.

In broad terms, Regulation 24 makes provision for:

  • A voluntary application, in writing and by the making of a sworn affidavit or solemn declaration, for regularisation of any contravention of the Exchange control regulations may be made to FinSurv (through an authorised dealer).
  • The details and market value of the foreign assets held in contravention must be disclosed in the application and must be supported by a valuation certificate (e.g. statement, or other proof) together with such other information as may be required by FinSurv.
  • A person who is already subject to an investigation or where an investigation is pending into the affairs of such person by FinSurv will be precluded from applying for the voluntary disclosure relief. A special application may however be made, subject to such conditions as may be prescribed, for FinSurv to nevertheless allow a person to apply for the voluntary disclosure.
  • A non-binding opinion may be sought from FinSurv as to the eligibility for relief from any contravention or non-compliance prior to submission of an actual application for voluntary disclosure relief. In this way, a potential applicant can gauge the likely outcome should an application be made.
  • Where an application for voluntary disclosure relief meets all the relevant criteria, FinSurv must grant relief and regularise any contravention.
  • Where an application is successful, FinSurv will provide the applicant with a notice of its decision which may contain such additional conditions as FinSurv deems appropriate. The approval and relief is subject to the payment of a levy to FinSurv which will be calculated on the market value of the disclosed assets or the amount of the contravention involved.
  • The levy payable must be paid by the applicant from foreign funds repatriated, or to the extent that such person does not have any foreign funds, the levy may be paid from local funds, provided that in such instance an additional levy, as prescribed, will be payable.

Note: National Treasury issued a media statement on 24 February 2016 on the special voluntary disclosure which indicated that the levy will be determined as follows:

  • The levy will be determined with reference to the market value of foreign assets held in contravention as at 29 February 2016
  • Where foreign assets are repatriated, the levy will be five percent
  • Where an applicant elects to retain the foreign assets abroad, the levy will be 10 percent
  • Where the levy is paid from local assets an additional two percent levy will be levied
  • Natural persons will not be entitled to offset any unutilised foreign investment allowance against the market value of the foreign assets disclosed to reduce the amount on which the levy will be calculated
  • An approval of voluntary disclosure relief may be withdrawn where it is found that the application did not contain all material information which was necessary for FinSurv to consider the application. In such instance, any levy paid may be forfeited and criminal prosecution may be initiated.


The practical effect and application of the above principles and provisions will have to be evaluated on a case-by-case basis. Uncertainties still exist and need to be clarified to ensure that unintended consequences are not triggered, that applicants are fully aware of what needs to be disclosed and that they understand the full extent of taxes, interest and levies required to be paid.

The specific forms and information disclosure requirements are also still to be finalised by SARS and FinSurv.

With a new  global standard from the Organization for Economic Co-operation and Development (OECD) for the automatic exchange of information between tax authorities coming into effect from 2017 and the OECD’s Base Erosion and Profit Shifting initiative (BEPS) becoming more of a reality worldwide and in South Africa, remaining non-compliant in respect of foreign assets poses an increasingly higher and real risk for taxpayers. 

For further information, please contact Eugene du Plessis, head of tax.