A new global standard for exchanging financial information between tax authorities that takes effect next year prompted Finance Minister Pravin Gordhan to announce in his budget speech this week yet another concession for those who have offshore assets that have not been declared to the tax authorities.
The Special Voluntary Disclosure Programme is a joint initiative of the South African Revenue Service (SARS) and the South African Reserve Bank. It will enable you to regularise your tax and exchange control problems relating to undisclosed offshore assets and income in a single application, similar to the grey-money amnesty of 2003.
The programme will begin on October 1 and run until March 31 next year and applies to both individuals and companies.
If you apply for the programme you will be expected to pay:
* Tax on half of the amount you took offshore – what is referred to as your seed capital – before March 1, 2015. So if you took R2 million out in 2005, you will have to include R1 million in your taxable income and pay tax on this at your marginal tax rate.
* Tax on the returns (dividends, interest or capital growth) that you earned on the amount held offshore that has accrued since 2010. So if your R2 million grew by R500 000 to R2.5 million by 2010 and then grows by R300 000 to R2.8 million by the time you declare it in the voluntary disclosure programme, you will have to include R300 000 in your taxable income and pay tax on it at your marginal rate.
* An exchange control levy of five or 10 percent of the amount you hold offshore. The five percent levy will apply if you repatriate the investment, while the 10-percent levy will apply if you leave it offshore. The levy must be paid from foreign funds, but if your foreign investments are not liquid and you use local assets to pay the levy, you will have to pay an additional two percent on top of the levy.
You will also not be able to deduct your R10 million foreign capital allowance or any remaining portion of this allowance, or any fees or commissions you have to pay, from your offshore funds before you apply the levy.
Under the disclosure programme, you won’t have to pay any penalties for failing to declare for tax purposes the returns on your offshore investment. You will also not face any criminal prosecution for contravening exchange control regulations or tax laws.
If you have a foreign trust, it will not qualify for the Special Voluntary Disclosure Programme unless you as the settler, donor, or beneficiary or the deceased estate of a settler, donor or beneficiary, elect to have the trust’s offshore assets and income deemed to be held in their own names (and for the trust to be dissolved).
You cannot apply for the voluntary disclosure programme if SARS or the Reserve Bank has started an audit of your tax affairs or is investigating your foreign assets or foreign taxes.
If SARS has already obtained information under the terms of any international exchange of information procedure about your foreign assets, you will also not be eligible for the programme.
Taxpayers who have failed to disclose income and capital gains for both local and foreign income and investments are currently able to use an ongoing voluntary disclosure programme provided for in the Tax Administration Act.
The difference between that programme and the Special Voluntary Disclosure Programme announced in the Budget is that the special programme gives you relief from declaring returns for all the years you have had an offshore investment for which you have not declared income. The ongoing disclosure programme only gives you relief from penalties and criminal prosecution.
If, as a South African resident, you do not apply for exchange control relief under the Special Voluntary Disclosure Programme, but you later voluntarily disclosure your offshore funds to the Financial Surveillance Unit of the South African Reserve Bank, you could be liable for a settlement ranging from 10 to 40 percent of the market value of your foreign assets.
The Financial Surveillance Department’s settlement fee depends on whether you retain your funds offshore or repatriate them.
As is currently the case with the ongoing voluntary disclosure programme, you can make an initial “no-name approach” through your tax adviser or lawyer to determine the outcome of using the Special Voluntary Disclosure programme.
Kezia Talbot, a legal adviser at BDO Wealth Advisers, says that as a result of the exchange of information between tax authorities and the Foreign Account Tax Compliance Act, “it is unlikely that undisclosed foreign assets will remain as such for long, resulting in serious consequences for the taxpayer”.
She advises those who have undeclared foreign assets to regularise their affairs through the programme announced in the Budget.
Provisions for the tax and exchange control relief provided under the Special Voluntary Disclosure Programme have been published in the Rates and Monetary Amounts and Amendment of Revenue Laws Bill and the exchange control regulations.