e-taxline Alert

Special Voluntary Disclosure - Foreign Assets

Eugene du Plessis Eugene du Plessis

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.

Final confirmation of the terms of the tax SVDP is expected in August 2016.

The main points of the exchange control SVDP programme are as follows:

Timeline

1 October 2016 - 31 March 2017: duration of the window period in which applications can be made.

29 February 2016: cut-off date for qualification under the SVDP. Unauthorised foreign assets held prior to and up to that date have to be disclosed.

Who may apply?

South African residents (individuals, sole proprietors, partnerships, deceased estates, insolvent estates, South African trusts, close corporations and companies) and former South African residents.

Any person/entity currently under investigation by FinSurv may not apply for administrative relief.

No applications will be considered prior to the official start of the SVDP programme.

Process

Applications must be made electronically through the SARS eFiling system. Where an application is made in a representative capacity (e.g. through a tax practitioner), then applicants must submit proof of authority to act as representative to the SVDP unit.

Exchange Control Relief

An applicant will enjoy full administrative relief but this is subject to the payment of any applicable levy and FinSurv issuing the required notice of approval.

What is to be disclosed?

Full and voluntary disclosure of all unauthorised foreign assets (of whatever nature, excluding bearer instruments), including the source and manner in which such assets were transferred and retained abroad. A sworn affidavit or solemn declaration of the contravention must be made.

In addition:

  • the market value at 29 February 2016 in the foreign currency in which such asset is held;
  • a description of the identifying characteristics and location of these assets; and
  • a valuation certificate by a valuator in the country where the assets are located, or a valuation by a sphere of government of the country where the assets are located, or an original or certified statement of account indicating the balance or market value, or any other form of proof of value of that foreign asset.

Contraventions for which relief can be applied for

Examples of contraventions for which an application for relief may be made include (inter alia):

  • The sale, cession or assignment of intellectual property owned or developed by SA residents without FinSurv approval. Full disclosure of the sale or assignment is required, including the identity of the parties involved and royalties paid by residents;
  • Foreign liabilities incurred by residents to acquire foreign assets without FinSurv approval. Full disclosure of the underlying transaction relating to the liability is required, including details of the liability itself and the parties involved; and
  • The acquisition of a direct or indirect interest in a foreign asset (including foreign cash balances) from funds that should have been repatriated to SA, or remitting funds abroad without FinSurv approval. Such transactions include, but are not limited to, the acquisition of foreign securities (including unauthorised share swaps), the retention abroad of export proceeds, unauthorised spending on credit cards resulting in foreign assets and inheritances from SA deceased estates with unauthorised foreign assets. Full disclosure of the transaction, including any underlying transactions is required and details of all the parties involved.

Loop structures

Any person or corporate entity that has formed an offshore structure through which a reinvestment into South African assets has been made, where such re-investment has not been approved by FinSurv (i.e. so-called loop or 74/26 structures), has 180 days from the date of submitting an application to provide evidence that this structure has been dissolved.

The South African assets must be disposed of to a resident at historic cost (original Rand amount).

Full disclosure must be made of the funds utilised to establish the offshore structure (the transaction establishment funds), funds exported from South Africa (i.e. dividends, profits, etc.) to the offshore structure (transaction funds) and any growth in the transaction funds (i.e. any accretion in value over and above the nominal value of the transaction funds through, for example, dividends, interest, capital gains, etc.).

A levy will be payable (see details below) on the total of the transaction establishment funds, the transaction funds and the transaction growth funds.

Special rules for donors to discretionary non-resident trusts

A South African residents who is a donor (or the deceased estate of a donor) in relation to a non-resident discretionary trust may elect that foreign assets held by that trust on 28 February 2016 be deemed to be held by him / her. This is to enable foreign assets not directly held by a person to be regularised in terms of the SVDP.

The election may be made in respect of foreign assets held by the trust which:

  • Were acquired by the trust by way of a donation made by the South African donor;
  • Has been wholly or partly derived from any unauthorised asset or from any amount not declared by the donor to the Commissioner for SARS as required by the Estate Duty Act or the Income Tax Act; and
  • Which has not, at the time of the election, vested in any beneficiary of that trust.

The effect of the election is that the resident is deemed to have held the foreign asset from the day that the discretionary trust acquired that asset until that asset is disposed of by the discretionary trust to any other person, in which case the disposal will be deemed to have taken place at the market value of the asset on the disposal date.

The founding documents of the non-resident discretionary trust as at 29 February 2016 must be submitted together with the application.

A levy will be payable (see details below) on the market value of the foreign assets disclosed as at 29 February 2016.

Levy payable

A levy will be payable to FinSurv:

  • If paid from foreign-sourced funds
  1. 5%  on the value of the unauthorised foreign assets or the sale proceeds if the assets are repatriated to SA; or
  2. 10% on the value of the unauthorised foreign assets if the assets are retained abroad.
  • If paid from local funds
  1. 12% on the value of the unauthorised foreign assets if the assets are retained abroad.

An applicant may not deduct any exchange control allowance or any remaining portion thereof from any leviable amount and the levy may not be reduced by any fees or commissions.

The levy must be paid within three months from the date of receipt of notification from FinSurv. If the levy is paid from foreign-sourced funds, this must be paid into the account of a local authorised dealer and must be converted into ZAR at the ruling spot exchange rate.

Applicants may convert unauthorised foreign assets that are denominated in multiple foreign currencies into US dollars at the exchange rate on 29 February 2016 for purposes of determining the levy.

Unsuccessful applications or withdrawal of approval

In the event that an applicant’s application is not approved or where a previously approved application is declared void by FinSurv, an objection may be lodged in writing with the Head of FinSurv within 30 days of the date of receiving a notice from FinSurv refusing administrative relief or withdrawing or declaring void relief previously granted.

The Head of FinSurv must refer the matter to a review panel, which will then deliver a notice of its decision to the applicant, including providing the reasons for its decision.

Should the review panel overturn the original decision of FinSurv, no further action will be taken against successful applicants.

However, further exchange control conditions may be applicable to regularised foreign assets.

Administrative relief outside of the SVDP

Certain contraventions / non-disclosure of foreign assets do not require to be regularised through the SVDP. However, disclosure of the existence of foreign assets held is still required to be made to FinSurv, albeit not through the prescribed SVDP application form on the SARS eFiling platform.

Disclosure must include, but is not limited to, confirmation of the source of all unauthorised foreign assets, details of the manner in which such assets were transferred and retained abroad as well as proof of the market value of the foreign assets as at 29 February 2016.

Examples of disclosures required to be made to FinSurv via and authorised dealer before 31 March 2017 include:

  • Immigrants to South Africa are required to have disclosed all foreign assets held prior to immigration and to undertake not to place such assets at the disposal of any third party normally resident in South Africa.
  • Foreign inheritances and legacies from non-resident estates prior to 17 March 1998 need to be disclosed to an authorised dealer to enable retention thereof offshore.
  • South African residents who became entitled to a foreign inheritance from the estate of another South African resident.

The FinSurv approval to retain such foreign assets offshore will be granted subject to the condition that the foreign assets may not be placed at the disposal of other residents or used to re-invest back into South Africa. No levy will be payable on such assets.

Where the inherited assets were held by the deceased contrary to exchange control, FinSurv will require the assets to be repatriated to South Africa and no levy will be payable. Where the assets are requested to be retained abroad, a levy of 10% will be payable and where applicable, existing “loop structures” must be terminated.

  • South African residents who earned income abroad prior to 1 July 1997 were required to repatriate such funds to South Africa. Declaring assets held abroad which were accumulated through foreign earned income will now regularise such assets and retention abroad thereof.
  • Corporate entities with approved foreign investments who have not prior to 29 February 2016 made the required annual declarations, submitted information and documentation required to FinSurv or who have not repatriated foreign dividends earned prior to 26 October 2004 or the proceeds from the disposal of foreign investments, must make the required declarations and submit all outstanding documentation and information to FinSurv prior to 31 March 2017.

What if I don’t make use of the SVDP?

South African residents who do not utilise the SVDP  as set out above to apply for administrative relief and who subsequent to the SVDP period make a full, frank and verifiable disclosure directly to FinSurv will be required, at the discretion of FinSurv, to pay a settlement amount ranging from 10% to 40% on the current market value of the unauthorised foreign assets. The ultimate settlement amount will depend, inter alia, on whether the applicant elects to repatriate or retain the foreign assets.

Persons who do not apply for SVDP or post SVDP relief may face the full force of the law.

To discuss how the SVDP could affect you or for further information, please contact Eugene du Plessis