The time has come! From 2017 there will be an automatic exchange of information between tax authorities. This means that the tax authority in Mauritius will have to inform the tax authority in South Africa (SARS) about that interest you have earned in your Mauritian bank account.

Normally this would not be a problem, but if you have not declared that foreign interest to SARS as a tax resident of South Africa, you could be in trouble.

However, the Minister of Finance announced in the 2016 budget speech that there will be a Special Voluntary Disclosure Programme (“VDP”) starting on 1 October 2016 and closing on 31 March 2017. The provisions regarding the relief have not been finalised as yet, but draft legislation has been detailed in the Revenue Laws Bill and the Revenue Laws Administration Bill.

The programme will give qualifying taxpayers an opportunity to declare to both SARS and the South African Reserve Bank (“SARB”) any assets illegally held offshore and income earned with limited penalties and interest.

Tax relief that may be granted if a successful application is made:

  1. Only 50% of the total amount used to fund the acquisition of offshore assets before 1 March 2015, will be included in the taxable income and subject to normal tax.
  2. Investment returns in respect of those offshore assets received or accrued only from 1 March 2010 onward will be included in taxable income in full and subject to normal tax. Therefore any investment returns earned prior to 1 March 2010 will be exempt.
  3. No understatement penalties will be levied where an application is successful.
  4. SARS will not pursue criminal prosecution for a tax offence where an application is successful.

 

Exchange control relief that may be granted if a successful application is made:

  1. Successful applicants may have to pay a levy based on the current market value as at 29 February 2016 for any assets illegally held offshore.
  2. The following conditions apply:
    • 5% of the leviable amount if the regularised assets or the sale proceeds thereof are repatriated to South Africa;
    • 10% of the leviable amount if the regularised assets are kept offshore.
  3. The levy must be paid form foreign-sourced funds. Should you not have sufficient liquid foreign funds available, an additional 2% will be charged, if local funds are utilised to settle the levy.
  4. Individuals will not be allowed to deduct their R10 million foreign capital allowance from any leviable amount.

 

Exchange control relief post the Special VDP

  1. South African residents that decide not to make use of this Special VDP programme shall, at the discretion of FinSurv, have to pay a settlement ranging from 10% to 40% on the current market value of their unauthorised foreign assets.
  2. If neither the Special VDP is utilised nor the FinSurv voluntarily approached, the FinSurv is mandated to recover the full amount of the contravention.

 

Who can apply for the special VDP?

Individuals and companies may apply for this Special VDP. Trusts will not qualify to apply for the Special VDP. However, settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts may participate in the Special VDP if they elect to have the trust’s offshore assets and income deemed to be held by them.

It should be noted that if you are aware of a pending audit or investigation in respect of any foreign assets or foreign taxes, then you may not apply for this Special VDP.

We therefore urge qualifying taxpayers that may have fallen foul of the declaration of foreign assets or income to carefully consider this Special VDP opportunity.

Engela Crocker

Senior Tax Manager, Johannesburg

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