This year’s Budget Speech for 2016/2017 saw the announcement of a Special Voluntary Disclosure Programme (SVDP). This programme, devised in the context of the new global standard for automatic exchange of tax information between countries, allows non-compliant taxpayers to voluntarily disclose their offshore assets and income.
As SARS will start receiving this information from 2017, the SVDP is a critical opportunity for voluntary disclosure of foreign assets, as well as for relief for contravention of the Exchange Control Regulations. Applications for relief under the SVDP will be valid for 6 months, from 1 October 2016 until 31 March 2017. The SVDP covers companies, deceased estates, beneficiaries of foreign discretionary trusts and individuals. However, trusts will not qualify.
Tax relief under the SVDP will be as follows:
- 50% of the total amount used to fund the acquisition of the offshore assets is taxable (if such amount constitutes “pre-tax” money).
- Only investment returns (e.g. interest, dividends, capital gains) from 1 March 2010 onwards are taxable.
- Interest on tax debts arising from the pre-tax funding money and from the investment returns starting 1 March 2010
- The SDVP also applies to Exchange Control contraventions that occurred before 29 February 2016. However, South African residents currently under investigation by the Financial Surveillance Department of South Africa (“FinSurv”) will not qualify for Exchange Control relief under the SVDP. Applications for Exchange Control relief under SVDP will begin on 1 October 2016 and close on 31 March 2017.
A successful application for Exchange Control relief is subject to a levy based on the current market value of the foreign assets as at 29 February 2016. This will be according to the following percentages:
- 5% of the leviable amount if the regularised assets or sale proceeds are repatriated to South Africa; and
- 10% of leviable amount if regularised assets are kept offshore.
The levy must be paid from foreign-sourced funds. Where insufficient liquid foreign assets are available and local assets are used to settle the levy, an additional 2% will be added to the levy.
If you are applying as an individual, you cannot deduct your R10 million foreign capital allowance (or any remaining portion thereof) from any leviable amount. Residents of South Africa who do not fall under Exchange Control relief under SVDP and wish to voluntarily, and independently, disclose information directly to FinSurv, will, at the discretion of FinSurv, pay a settlement ranging from 10%–40% of the current market value of their assets.
South African residents who neither applied for Exchange Control relief in terms of the SVDP nor voluntarily approached FinSurv for regularisation may face legal consequences. In this regard, FinSurv has been mandated to, where appropriate, recover the full amount of the contravention.
For strategic assistance on application under the SVDP, or voluntary disclosure of foreign assets, contact us.