Tax and exchange control relief on disclosing offshore assets

Graeme Palmer, a Director in the Commercial Department of Garlicke & Bousfield.

Treasury has announced a special voluntary disclosure programme (VDP) in respect of taxpayers’ offshore assets and income. The background to the new VDP is that from 2017 the standard for the automatic exchange of information between tax authorities will provide additional information to the South African Revenue Service (SARS) about taxpayers’ offshore assets. Through the special VDP taxpayers are given a limited opportunity to regularise both their tax and exchange control affairs before SARS acts on information they receive.

Taxpayers have been offered a six month window period for the special VDP starting on 1 October 2016 and closing on 31 March 2017. According to the draft Bill, individuals and companies who are residents on 29 February 2016 may apply in their own name or on an initial “no-name approach”. Trusts do not qualify for the special VDP, however, donors and beneficiaries of offshore trusts may, if they elect to have the trust’s assets and income to be deemed to be held by them.

The relief granted to the successful applicant includes:

• Only 50% of the seed money used to fund the acquisition of offshore assets will be included in taxable income;
• Investment returns received or accrued to the taxpayer before 1 March 2010 will be exempt;
• Interest on the tax debts arising from the disclosure will only commence from 1 March 2010;
• No understatement penalties;
• Exemption from prosecution for tax offences.

The South African Reserve Bank will also be offering residents the opportunity to regularise their exchange control affairs through the special VDP process. Applications for exchange control relief are made pursuant to the provisions of Regulation 24 of the Exchange Control Regulations, 1961.

Applicants who are granted relief for unauthorised foreign assets or structures may have to pay a levy based on the current market value thereof at 29 February 2016. The conditions that apply are that 5% of the leviable amount will be payable if the regularised assets or the sale proceeds thereof are repatriated and 10% if they are kept offshore. The levy must be paid from foreign sourced funds failing which an additional 2% will be added to the extent local assets are used to settle the levy. Individuals cannot deduct their R10 million foreign capital allowance or any remaining portion thereof from the levaible amount and the levy may not be reduced by any fees or commissions.