NEWSLETTER 6 OF 2004

The South African Revenue Service and South African Reserve Bank has introduced a new amnesty for those persons who have illegally removed money from SA. This amnesty application has to be made before 29 February 2004 if it effects you.

Not only did this contravene the Exchange Control Regulations but in some cases these persons failed to declare the income they derived on their offshore funds. In July 1997 additional forms of foreign passive income became taxable in the hands of SA residents (e.g. rent and royalty income), and with effect from years of assessment commencing on or after 1 January 2001 SA residents became taxable on their worldwide income.

The purpose:

• Department of the South African Reserve Bank (SARB) with details of foreign assets,

• facilitate repatriation of foreign assets to SA, and
• increase future revenue collection.

  Information required in respect of tax relief applications:

• Disclose the receipts and accruals from your foreign asset for the tax year to 28 February 2003.
• A statement of your assets and liabilities as at 28 February 2002 (or the last day of the last year of assessment before that), showing historical and estimated market values.
  

  Who can apply for amnesty?

• Individuals, close corporations, trusts and deceased estates holding foreign assets as at 28 February 2003. Companies are excluded.
• To qualify for the exchange control amnesty, a person must be a resident for exchange control purposes on 28 February 2003.
• To qualify for the tax relief measures, the person must be a resident
• For exchange control amnesty the person applying must hold at least one foreign asset on 28 February 2003 that was derived in contravention of Exchange Control Regulations.
• For income tax amnesty the person must hold at least one foreign asset on 28 February 2003 that was in whole or in part derived from funds that were not declared for income tax or estate duty purposes.

What taxes qualify?

The tax amnesty applies to contraventions of the Income Tax Act and Estate Duty Act, but does not apply to:

• Minimum requirements:-

• The prescribed application form that includes a sworn affidavit or solemn declaration must be submitted to the unit between 1 June 2003 and 29 February 2004.
• Applicants must confirm that the foreign assets were not derived from an unlawful activity as defined in terms of the Prevention of Organised Crime Act
• You must have submitted your 2003 tax return or have a valid extension for its submission.
• You must pay the exchange control amnesty levy and domestic tax amnesty levy after approval by the due date.

  THE EXCHANGE CONTROL AMNESTY

What is the exchange control amnesty levy?

You will have to pay an exchange control amnesty levy on any funds held in contravention of the Exchange Control Regulations. The levy is based on the market value of the illegally held foreign assets on 28 February 2003, and is:

• The leviable amount:

• in the case of an individual, is reduced by any portion of the R750 000 foreign capital allowance that you have not previously utilised, and
• may not be reduced by any fees or commissions.

  The levy must be paid out of foreign funds.

What proof of my foreign assets must accompany my exchange control amnesty application?

In respect of your undisclosed foreign assets as at 28 February 2003 you must provide:

• What are the benefits of the tax relief on undisclosed foreign income?

In respect of years of assessment ending on or before 28 February 2002 you will not be liable for:

• This relief applies where the previously undeclared income:

• is reflected in an asset held and disclosed on 28 February 2003, or
• relates to an asset no longer held on that date, other than an asset that was donated.

  Where you do not disclose foreign assets held on 28 February 2003 any income relating to those assets will not be covered by the amnesty.

UNDECLARED SA SOURCE INCOME

What happens where the amounts transferred offshore arose from undeclared SA source income?

The undeclared amounts that you placed offshore qualify for tax relief, but are subject to a 2% domestic tax amnesty levy.

What information must I disclose in respect of the domestic undeclared amounts?

You must disclose:

What are the benefits of the tax relief on undisclosed domestic income that was converted to foreign assets?

In respect of the amounts omitted that were accumulated as foreign assets you will not be:

• How will my newly disclosed assets be valued for purposes of the Income Tax Act?

The cost of assets may not exceed the market value of the asset on 28 February 2003 for the purpose of determining:

• under the Income Tax Act. This measure is designed to prevent understatement of the exchange control amnesty levy.

Kind Regards

Teresa Louw
Worldwide Tax Solutions