Budget 2016 – Special Voluntary Disclosure Programme in respect of offshore assets and income

Budget 2016 finalFollowing recent rumours that the Minister may announce an amnesty in respect of offshore assets and income, National Treasury released a media statement earlier today announcing the introduction of such a Special Voluntary Disclosure Programme (VDP).

According to the media statement, the purpose of the VDP is to give non-compliant taxpayers an opportunity to voluntarily disclose offshore assets and income. The media statement warned that, with a new global standard for the automatic exchange of information between tax authorities providing SARS with information regarding such offshore assets and income from 2017, time is running out for taxpayers who have not disclosed assets abroad. The VDP will provide both individuals and companies with an opportunity to regularise their tax and exchange control affairs through one joint process.

From a tax perspective, the VDP will apply for six months commencing from 1 October 2016 and ending on 31 March 2017. Individuals and companies will be able to apply for the VDP on the same basis as is currently provided for in Chapter 16 of the Tax Administration Act, No 28 of 2011. The existing voluntary disclosure programme will be extended to the VDP.

According to the media statement, trusts will not qualify for the VDP, however, settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts may participate in the VDP if they elect to have the trusts offshore assets and income deemed to be held by them.

Persons may not apply for the VDP if they are aware of a pending audit or investigation in respect of foreign assets or foreign taxes, or if such audit or investigation has commenced. If the scope of the audit or investigation is in respect of an area other than foreign assets or foreign taxes, a person may apply for the VDP.

Amounts in respect of which SARS obtained information under the terms of an international exchange of information procedure will not be eligible for the VDP.

The relief proposed in terms of the VDP will be that:

  • only 50% of the total amount used to fund the acquisition of offshore assets before 1 March 2015, if the applicant failed to comply with a tax Act administered by SARS, will be included in taxable income and subjected to normal tax;
  • investment returns on the offshore assets received or accrued from 1 March 2010 onwards will be included in taxable income in full and subjected to normal tax. Investment returns prior to 1 March 2010 will be exempt from normal tax;
  • interest on tax debts arising from the disclosure of amounts used to fund the acquisition of offshore assets or investment returns in respect of those offshore assets will commence only from 1 March 2010;
  • no understatement penalties will be levied where the VDP application is successful; and
  • SARS will not pursue criminal prosecution for a tax offence where the VDP application is successful.

From an exchange control (Excon) perspective, the Financial Surveillance Department of the South African Reserve Bank (FinSurv) will be offering South African Excon residents (Residents) an opportunity to regularise their Excon affairs by applying for relief under the VDP in respect of contraventions of the Exchange Control Regulations, 1961 (Excon Regulations), including in respect of the ownership of unauthorised foreign assets. Applications must be made pursuant to the provisions of Regulation 24 of the Excon Regulations.

The VDP will apply to all Residents, both individuals and entities, and in respect of Excon contraventions that occurred prior to 29 February 2016. Residents who are the subjects of current and/or pending investigations by FinSurv will not qualify for relief under the VDP. The VDP will commence on 1 October 2016 and end on 31 March 2017.

The relief proposed in terms of the VDP will be that:

  • applicants may be liable for a levy based on the current market value of the unauthorised foreign assets and/or structures as at
    29 February 2016. The levy will be 5% of the leviable amount if the regularised assets or the sale proceeds are repatriated to South Africa, and 10% 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, an additional 2% levy will be added to the extent that local assets are used to settle the levy; and
  • individuals may not deduct their R10 million foreign capital allowance or any remaining portion thereof from any leviable amount and the levy may not be reduced by fees or commissions.

Where Residents decide not to utilise the VDP they will, 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. The determination of the settlement amount will depend on factors which include whether the applicant elects to retain the funds abroad or repatriates the funds.

The media statement has warned that Residents who do not make use of the VDP or voluntarily approach FinSurv may face the full force of the law and that the FinSurv is mandated, in appropriate circumstances, to recover the full amount of the contravention.


by Mareli Treurnicht