The last chance to regularise foreign assets
IN THE 2016 Budget Review Finance Minister Pravin Gordhan announced a last opportunity for South Africans holding funds abroad that are not known to the South African Revenue Service (SARS) or the Reserve Bank to regularise those assets. A revised draft bill regulating the Special Voluntary Disclosure Programme (SVDP) was published on July 20 and that bill is fast approaching finalisation.
On July 13 the Reserve Bank issued a comprehensive circular dealing with the exchange control aspects of the SVDP.
It must be remembered that the Tax Administration Act contains the so-called Permanent Voluntary Disclosure Programme (Permanent VDP), which does not contain any date by which an application must be lodged. Those taxpayers wishing to regularise their foreign assets will need to evaluate whether to do so using the Permanent VDP or SVDP, because the methodology is quite different. The SVDP will begin on October 1 2016 and will terminate on March 31 2017.
The revised draft bill makes it clear that the amounts of receipts and accruals not previously declared to SARS as required by the Income Tax Act or the Estate Duty Act for tax purposes, excluding employees’ tax purposes, held offshore during the period March 1 2010 to February 28 2015 will be exempt from tax. Thus, no donations tax, estate duty or income tax will be payable on the undeclared foreign assets up to February 28 2015.
Clearly, with effect from March 1 2015 taxpayers must account for income tax on income received on the foreign assets and donations tax on assets donated thereafter. Furthermore, they will be subject to estate duty when the person holding the foreign assets passes away after March 1 2015.
Any person who held a foreign asset wholly or partly derived from receipts and accruals not previously declared to SARS as required by the Income Tax Act or the Estate Duty Act which was disposed of before March 1 2010, other than by way of donation or disposal on loan account to a trust may elect that the asset is deemed to have been held for the period March 1 2010 to February 28 2015 on the basis that the value for the period in question will be equal to its highest value while actually held by the applicant. If the applicant is unable to establish the amount with certainty, SARS may agree to accept a reasonable estimate.
The revised draft bill requires that an applicant must include in their taxable income in the 2015 tax year an amount equal to 50% of the highest amount determined in respect of the aggregate value of all foreign assets referred to above as at the end of each year of assessment ending on or after March 1 2010 but not ending on or after March 2015. Thus, taxpayers will need to determine the market value of all foreign assets held, not previously declared to SARS and to convert the foreign market value into rand at the spot rate at the end of each year of assessment.
Assume that a taxpayer held foreign assets on which foreign income such as interests, dividends and capital gains had not previously been reported to SARS for the tax years set out below: or a beneficiary of a foreign trust may elect that any asset located outside SA which was held by the discretionary trust from March 1 2010 to February 28 2015 will be regarded as being held by that person for purposes of all tax acts.
As a result, the foreign assets owned by the foreign trust will be regarded as forming part of the estate of the applicant for purposes of estate duty on their death. The election available for foreign trusts applies in respect of foreign assets where such assets were acquired by the foreign trust by way of a donation and which has been wholly or partly derived from any amount not declared to SARS as required by the Estate Duty Act or the Income Tax Act.
Prospective applicants need to ascertain market values of foreign assets held at the end of February of each year for 2011 to 2015 so that they may ascertain which value was the highest in the five years in question. Where a person applies for SVDP no understatement penalties will be imposed and SARS will not pursue a criminal prosecution for a tax offence when application under the SVDP is successful. the applicant stipulates the source of all unauthorised foreign assets and includes details of the manner in which such assets where transferred and retained abroad.
To submit an application for exchange control relief the applicant must submit proof of the market value of the foreign asset as at February 29 2016 as well as a description of the identifying characteristics and location of such foreign asset supported by a valuation certificate by a valuator in the country where the foreign unauthorised asset is located. Furthermore, the applicant must submit a sworn affidavit or sworn declaration setting out details of the contravention.
The Bank’s financial surveillance department has indicated that a levy of 5% would be payable on the value of the unauthorised foreign assets where those assets were repatriated to SA. The 5% levy must be paid from foreign-sourced funds. If the applicant chooses to retain the foreign assets abroad, a levy of 10% is required to be paid from foreign-sourced funds. Where the applicant is unable to pay the 10% levy from foreign-sourced funds because the foreign assets are illiquid, the levy may be increased to 12% of the value of the unauthorised foreign assets.
Applicants will need to ascertain the nature of the funds held abroad and whether those funds are held contrary to the exchange control regulations, in which case the levy referred to above will be payable. Where the foreign funds relate to technical violations of exchange control regulations such that the applicant failed to declare foreign earnings or foreign inheritances, a disclosure should be made to the applicant’s authorised dealer and in most cases no levy will be required.
People who immigrated to SA and who failed to place their foreign assets on record on their immigration can now do so without attracting any levy and can retain the assets abroad which they held prior to immigration to SA.
Only a six-month window to apply for relief under the Special Voluntary Disclosure Programme
Dr Beric Croome is a tax executive at ENSafrica.