If you have funds overseas, you have one last chance to declare these in the Special Voluntary Disclosure Programme, which is being jointly run by SARS and the South African Reserve Bank (SARB). The programme will be run from 1 October 2016 to 31 March 2017, according to National Treasury.
Not much information has been released from Treasury as to how the process will be carried out, however, Barrett noted that it will probably be run in a similar manner to the previous two disclosure programmes that have taken place. “All we have to go on at this stage is a three page media briefing,” said Tony Barrett, a wealth manager at First National Bank (FNB) Financial Advisory.
“This is version three, the first Voluntary Disclosure Programme came out in 2003, there was version two in 2010 and this is version three. If I can judge by the previous two amnesty programmes, first of all clients need to take advice if they are exposed in any way,” revealed Barrett.
If you have assets overseas, you need to see if you are in contravention of either exchange control or income tax. If the answer is yes, you then need to find out if you fall into the ambit of the amnesty. Historically there was a SARB exchange control amnesty application form, and there was a separate tax amnesty application form, as some people may only be in contravention of one of these. “But we don’t know the specifics, we just know the details that were given in that media briefing,” emphasised Barrett.
However, Barrett pointed out that everything will be taxed in terms of assets and funds overseas. If you are a South African tax resident, under the law, you are taxed on your worldwide income in South Africa. “So it is everything. If you have capital gains offshore, if you have interest, if you have dividends, you earn a salary offshore.”
However, there are certain exemptions and deductions that are allowed. There are double taxation treaties which prevent a person from being taxed twice for the same thing. For example, if you own a rental property in the United Kingdom but you live in South Africa as a South African tax payer, you will not be taxed by both the UK and South Africa for the same property.
With regards to an inheritance that you receive overseas: the same principle applies as to locally received inheritances. The inheritance itself is not taxable, however, any growth or interest you earn on the inheritance is taxable. “Inheritance is tax free in the hands of the recipient, however, what they do with that inheritance may trigger tax events,” explained Barrett.
With regards to exchange control, there will be penalties applicable. Treasury revealed that if a person repatriates the assets or funds, there is a levy of five percent applicable. This is increased to 10% if the assets are kept overseas. In addition, “where insufficient liquid foreign assets are available, an additional two percent will be added.”
With regards to paying tax on your foreign assets, 50% of your assets that were off shore in contravention of income tax dating back to 2010 will be subject to tax. However, the formulas to determine this have not yet been released by Treasury or SARS.
To conclude, Barrett emphasised that he believes that version three of the Special Voluntary Disclosure Programme is the last chance for people to come clean about their foreign assets and investments.
“The automatic exchange of information act that the organisations have brought in, SARS is going to be getting the details from other revenue authorities around the world. So if you don’t take advantage of this SARS won’t need to have another amnesty because they will have the information,” clarified Barrett.