SARS additional disclosure requirements for tax clearance in respect of transferring funds abroad

SARS has introduced an enhanced compliance system change in relation to the current tax clearance status (TCS) required for the transfer of funds by a taxpayer intending to make use of their foreign investment allowance (FIA) of up to R10 million per calendar year. It has been noted the effective date of this change is24 April 2023. The enhanced changes to the TCS system require additional information on the approval of an International Transfer (AIT) Application, to aid SARS in ensuring that all required tax payable has been duly reported by the taxpayer. It is further noted that this would only apply for amounts in excess of R1 million. No TCS is required for transfers up to R1million per calendar year.

SA Budget 2023 – Does your controlled foreign company have real substance?

An offshore company which meets the definition of a controlled foreign company (CFC) will have substance if it has a foreign business establishment (FBE) as contemplated. Usually, if the income of your CFC is attributable to an FBE, such income will not be taxed in the South African shareholders hands. Conversely if there is no FBE such income may be taxed in the SA shareholders hands. Earlier this month the Supreme Court of Appeal delivered its judgement in CSARS v Coronation Investment Management on whether the CFC in question had an FBE. The court ruled in favour of SARS.

Removal of Prohibition of “loop structures” – Dont Forget to Check the Tax Consequences

Authors: Denny Da Silva, Tax Specialist, Baker McKenzie in Johannesburg. In line with the South African Reserve Banks (SARB) undertaking to implement a new capital flow management system, changes began to come through in early 2021. In the first circular for the year, issued on the 4th of January 2021 (Circular), the SARB announced that with effect from 1 January 2021 the full “loop structure” restriction for private individuals and companies that are tax resident in South Africa had been lifted to encourage inward investments into South Africa.

Changes to the South African Exchange Control Rules

Authors: Cor Kraamwinkel,a Partner, Keith Veitch,a Consultant & Sean Franken, an Associate from Webber Wentzel. ​​​​​​On 4 January 2021 the South African Reserve Bank released Exchange Control Circular No. 1/2021 which provides for the long-awaited relaxation of the South African exchange control rules relating to loop structures and investments. As background, in 2020 the Minister of Finances announced in the 2020 Medium Term Budget Policy Statement that the prohibition on “loop” structures for exchange control purposes would be relaxed.As a result, the South African Reserve Bank has advised that from 1 January 2021 the full “loop” structure restriction has been lifted to encourage inward investments into South Africa; subject to the normal criteria applying to inward investments and reporting to the Financial Surveillance Department (FinSurv).

Sars is aware of your offshore assets

The days where Sars shuts its eyes to taxpayers offshore holdings are a thing of the past. Sars is finally utilising the Automatic Exchange of Information regime to pin down taxpayers who have not disclosed their offshore interests and numerous taxpayers have already received some alarming notices to this effect. The notice The notice informs the taxpayer that Sars intends to initiate a review of their tax affairs, based on information it received from 87 foreign jurisdictions through the Automatic Exchange of Information, regarding the offshore holdings of South African taxpayers. After recovering from the shock of the introductory words of the notice, Sars extends an olive branch and states that it wishes to engage with the taxpayer first, in the interests of administrative justice. The consolation is short-lived though because Sars then proceeds to direct a detailed and onerous information request at the taxpayer.

Offshore Trusts: the basic considerations and recent amendments

A new world The world of offshore trusts is now more dynamic than ever. The benefit of trusts as effective tools for the preservation of assets for future generations has been commonly known and accepted for decades. Globally, the trust environment has changed significantly due to the introduction of the Common Reporting Standards and resulting Automatic Exchange of Information between various revenue authorities around the world. The identities of original funders and beneficial owners are no longer protected.

Binding Private Ruling: Roll-over relief can also apply to transactions involving non-resident companies

Authors: Louise Kotze and Louis Botha. The Income Tax Act, No 58 of 1962 (Act) provides for roll-over relief in respect of any capital gains that would normally be realised pursuant to the disposal of an asset, provided the requirements of the relevant roll-over relief provision in the Act are met. For example, in terms of s47 of the Act, transactions relating to the liquidation and winding-up of companies, can qualify for roll-over relief so that the capital gains liability that may arise in the normal course of the transaction will be deferred and no capital gains tax (CGT) will be payable at the time that the transaction in concluded.

Reducing the cost of transfer pricing compliance for MNEs

Author: Okkie Kellerman (ENS Africa). Many countries have become more focused on combating tax avoidance. As such, transfer pricing compliance has become much more burdensome due to substantial documentation requirements and multiple filing deadlines. Multinationals (MNEs) have to take action to control their transfer pricing risks, but the cost of doing so could substantially increase.

Controlled foreign companies: look before you leap

Authors: Carmen Gers and Simone Krupanandham (ENS Africa). Section 9D of the Income Tax Act, 1962 (the Act) is aimed at South African residents who directly or indirectly hold more than 50% of the total participation (broadly speaking shares) or voting rights in a foreign company. A foreign company in this context is classified as a controlled foreign company (CFC). In terms of section 9D, the net income of the CFC is included in the relevant residents income in proportion to the residents effective participation rights in that CFC, thus resulting in the resident being subject to tax on such notional income imputed to it.

Africa Tax in Brief

CAMEROON: Treaty with South Africa enters into force On 13 July 2017, the Cameroon/South Africa Income Tax Treaty, 2015 entered into force and generally applies from 1 January 2018. GHANA: Value-added tax (VAT) on selected medical supplies abolished In terms of the VAT (Exemption of Active Ingredients, Selected Inputs and Selected Drugs or Pharmaceuticals) (Amendment) Regulations 2017, presented to Parliament on 1 August 2017, the 17.5% VAT/National Health Insurance Levy on selected imported medicines that are not produced locally, is abolished pursuant to the Budget for 2017.