The last tax amnesty: how to get on board

By Esti Woznica, Head of Corporate Benefits

You may have heard whispers in the Woolies parking lot about the upcoming tax amnesty period or SARS Voluntary Disclosure Programme (VDP) for South African citizens with non-declared money abroad.

Now I’m in no way implying you’ve stashed illegal money offshore, but just in case your grandma has been squirreling away ‘holiday funds’ she forgot in the UK while travelling in the 90s, you might want to take a deep breath and read on.

SOS: it’s the final tax amnesty period

The first thing you need to know is that there is a brief window period from October 2016 to March 2017. This is the last such period to be offered by the South African government and represents the perfect opportunity to disclose, and pay reduced fines related to, assets held abroad.

Not unique to South Africa, this initiative is indicative of the broader international movement towards greater transparency and foreign tax compliance.

If you’re caught after the ship has sailed, it may feel a lot like treading water out at sea without a life jacket and with jellyfish as your only friends (not so much a matter of if you’re going to get stung, but when.)

Nowhere to hide

Common Reporting Systems (CRS) and the Foreign Account Tax Compliance Act (FATCA) (to which even Panama is now adhering) is the automatic exchange of financial information between governments around the world.

This means from 2017 onwards, any assets held by a non-resident in more than 130 countries will be handed over to South African authorities together with the account holder’s name, details and account balance.

After the recent leak of the so-called Panama papers, SARS identified 1700 South African residents within four weeks that had fallen foul of the law regarding offshore funds and assets. Yes, our global village doesn’t leave much room in which to hide.

Octagon special: reduced legal fees

Be aware that preparing a VDP application will take significant time and cost, so it’s best to start now before the window period opens.

We have a special offer of reduced legal fees from ENS Africa – a blue chip firm with a national footprint. If you need to discuss the various options available to you in this regard, feel free to contact your advisor.

There’s no easy way to sugar coat this, so grab your wet suit and dive right in. Here’s what you need to know:

  1. There are three possible scenarios, either one or both:
    * SA Reserve Bank (SARB) = forex breach
    * SA Revenue Service (SARS) = tax breach
  2. Common sources for unauthorised funds:
    * Travel allowances not fully utilised overseas, left there and invested
    * Immigrants to SA who inherited overseas and have since invested
    * SA citizens who emigrated, subsequently returned to SA and left money abroad
    * An overseas inheritance received by an SA resident that didn’t have to be declared to SARB, but where the interest and dividends were due to SARS
    * Payments from debtors or family abroad made into foreign bank accounts
    * Not yet clear if there will be a simplified process for assets less than $250 000
  3. You’ve discovered sweet old granny has a few gold skeletons in her closet. Now what?

For SARB:
* There’s a 5% levy on the asset if you bring it back to SA (which could create offshore capital gains tax as well)
* There’s a 10% levy on the asset if you leave it offshore (it can remain there regardless of the amount, and is now legal)
* If the levy is paid from local assets, add 2%. To avoid the levy increasing, rather use offshore liquid assets to settle it.
For SARS:
* You will need to redo the tax returns for the relevant years and include in income tax. It’s unclear at this stage which exchange rate will be used (rate at the time, or current forex rates?)

  1. The information required for the VDP application includes:
    * When was the money taken out the country? You will need to provide proof of this.
    * A full timeline of events, with current valuation statements from offshore bank accounts etc.
    * For foreign trusts: when was it founded, was the founder a resident? Financial statements from the last five years, the trust deed and distributions etc.

N.B. The trust donor or beneficiary will be taxed in their personal capacity.
* Your lawyer/accountant will do a calculation of the liabilities completion and submission of the VDP application, and liaise with SARB and SARS.

  1. CRS includes foreign trusts, and ultimate beneficial ownership and funding will be made known.
  1. SARB and SARS will be far less lenient in the future, as they will have access to the information either way. If you are caught before VDP opens, during or after it will be too late to apply for amnesty.
  1. Do you have an offshore will to deal with assets in another jurisdiction? If so, do not include them in your South African will.

Right, you have the gist of it, but really, who wants to pay back taxes? I mean, what’s the worst that could happen? Well, authorities could seize the non-declared asset and move to criminal prosecution for non-disclosed monies (ouch!).

My advice? Get on board, seek the right counsel, and make a full disclosure before the amnesty period ends. Your peace of mind will be worth every minute (and every penny) spent.

Hopefully none of the above applies to you or anyone you even remotely know, and if it does, let’s hope it’s in hard currency and not earning negative interest rates in a European bank account.

If you do need to talk about it, make sure to conduct the conversation in an undertone without moving your lips.