South Africa finalises Special Voluntary Disclosure Programme

19 January 2017, the Taxation Laws Amendment Act 2016, which confirmed the final details of the Special Voluntary Disclosure Programme (SVDP), was promulgated. The SVDP provides a final window of opportunity for taxpayers to regularise their tax and exchange control affairs before automatic exchange of information under the OECD’s Common Reporting Standard (CRS) gets underway from September 2017. The SVDP application period opened on 1 October 2016 and will close on 31 August 2017.

The SVDP is available to South African resident individuals and companies who have not in the past disclosed tax and exchange control defaults in relation to offshore assets. South African trusts will not qualify to make use of the SVDP, but settlors, donors, deceased estates and beneficiaries of foreign discretionary trusts may participate if they elect to have the trust’s offshore assets and income deemed to be held by them personally.

The SVDP focuses on assets derived wholly or partly from receipts or accruals not declared as required in terms of the Income Tax Act or Estate Duty Act, which were held by a person or company during the period 1 March 2010 to 28 February 2015. Special deeming provisions apply for assets held and disposed of prior to 1 March 2010.

The SVDP provides that 40% of the highest aggregate market value of the unauthorised assets, as at the last day of February of each year between 2011 and 2015, will be included in the taxpayer’s taxable income for 2015 and be subject to tax in South Africa. If an application is successful, the assets are deemed to be regularised and any prior tax liabilities that may have arisen are “forgiven” for income tax, donations tax and estate duty purposes.

No understatement penalties will be levied and SARS will not pursue criminal prosecution for a tax offence, although interest on the tax liability will run from 1 October 2015. Future income will be fully taxed, and declared assets will remain liable for donations tax and estate duty in the future, should the applicant donate these assets or die in possession.

The SDVP will also apply to exchange control contraventions that occurred before 29 February 2016. Successful applicants for exchange control relief may have to pay a levy based on the market value of the foreign assets as at 29 February 2016. The following percentages will apply: 5% of the leviable amount if the regularised assets or sale proceeds are repatriated to South Africa; and10% of the leviable amount if the 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. Individuals will not be allowed to deduct their R10 million foreign capital allowance (or any remaining portion) from any leviable amount.

The South African Revenue Service (SARS) and the South African Reserve Bank (SARB) have established a joint application process utilising the SARS eFiling website. The SVDP will not be open to individuals and companies if an audit or investigation in respect of foreign assets or foreign taxes is underway or pending. Amounts in respect of which SARS has obtained information under the terms of any international exchange of information procedure will also be ineligible.