Johan van der Walt, Head of Tax Controversy, KPMG South Africa, outlines the latest developments in South Africa's Special Voluntary Disclosure Programme.
The South African Special Voluntary Disclosure Programme (SVDP), announced in the February 2016 Budget Speech, is taking shape. As I discussed in my update last month, the programme is the final opportunity for non-compliant South African (SA) taxpayers with undisclosed assets abroad to voluntarily disclose and regularise their offshore assets and income. The application window runs from 1 October 2016 until 31 March 2017.
On 13 July 2016, the SA Reserve Bank’s Financial Surveillance Department (SARB FinSurv) issued Circular 6/2016, outlining the details of the programme. Last week then saw the release of the draft SVDP tax legislation for comment (until 8 August 2016).
Some of the salient features of the SVDP Exchange Control (Excon) dispensation: the market value (converted to South African Rand (ZAR)) of the unauthorised offshore asset(s) as at 29 February 2016 determines the applicable regularisation levy. The levy range is: 5 percent if repatriated, 10 percent when left off-shore and 12 percent should the levy be paid from SA sources. No set-off against the unutilised portion of the R10m p.a. Foreign Investment Allowance is possible. The Circular also deals with the unwinding of so-called ‘loop structures’. Furthermore “administrative relief outside of the SVDP” is possible to belatedly declare, via the Authorised Dealer network, off-shore inheritances, foreign earned income, etc. not placed on record at the time. The aforementioned attracts no levy. There are special rules relating to off-shore discretionary trusts, allowing an election which, effectively, sees the SA resident natural person applicant stepping into the shoes of the trust.
On the tax side of the SVDP, the approach has been simplified: Instead of calculating two different amounts (i.e. ‘seed capital’ and investment returns) to be included in the taxpayer’s taxable income, there is now a single calculation. The amount subject to tax equals 50 percent of the highest value of the aggregate of all offshore assets between 1 March 2010 and 28 February 2015 that were derived from undeclared income. The afore-mentioned value is the market value determined in the relevant foreign currency translated to ZAR at the spot rate at the end of the tax period in which the highest value fell.
The undeclared income that originally gave rise to the assets mentioned above will be exempt from income tax, donations tax and estate duty liabilities arising in the past. However, future income will be fully taxed and assets declared will remain liable for donations tax and estate duty in the future, should the applicant donate these assets or pass away while holding them. Taxpayers who disposed of any foreign held assets prior to 1 March 2010 may also apply for relief under the SVDP. Special deeming provisions will apply in this regard.
South Africans in Australia who are still regarded as tax and/or Excon resident in SA should be considering how the SVDP may affect them.
For more detail regarding the upcoming SVDP, please get in touch.