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For most investors an offshore component to their financial portfolio is an integral part of the wealth management process and an essential diversification tool in an interlinked global marketplace.
There is nothing untoward about having an offshore portfolio, provided your financial adviser has ensured you are fully tax compliant and your accounts have been disclosed to the relevant authorities.
Each South African is allowed by law to invest up to R10m outside South Africa on an annual basis, on the proviso that tax clearance has been given by the South African Revenue Service.
Until now, a lack of co-operation between different countries has created some grey areas, but increased global vigilance and the launch of the Organisation for Economic Cooperation and Development’s (OECD’s) new Automatic Exchange of Information portal will increase the necessity for compliance.
While SA has joined a raft of developed world economies in signing up for the portal, it is important to note that the declaration of offshore interests has long been on the country’s radar.
The first offshore exchange control and income tax amnesty appeared in 2003 and a second similar amnesty followed in 2010.
In his 2016 Budget Speech, minister of finance Pravin Gordhan announced another exchange control and tax amnesty for errant South African taxpayers.
Under the OECD programme, data will be collected in 2016 and the first exchange of information between co-operating countries will take place in 2017.
Therefore, with this automatic exchange of information on the horizon, the current amnesty is likely to be the last one offered.
There will be no place to hide for offenders, so there will be no need to offer further amnesties as the information will be readily available. Version three of the South African amnesty could, therefore, literally be the last chance saloon for offenders.
National Treasury has outlined the terms of the third amnesty which, from an exchange control perspective, are not dissimilar from those of the previous two amnesties.
Where the owner wishes for the funds to remain offshore, there is a 10% penalty on funds that are in breach of exchange control regulations. If the funds are remitted back to SA, only a 5% penalty is payable.
These penalties must be paid from the offshore funds and where there is a lack of available offshore cash, such as for property holdings, the penalty can be paid from rand-based sources, but an extra 2% additional penalty is added.
There are, of course, also tax implications, with National Treasury advising that 50% of taxes owing would be due and payable for the last five tax years.
Some clients may need to seek the advice of a tax professional regarding this point, as no details have been given as to how this 50% will be calculated.
Interest would be charged on outstanding taxes, but no penalties would be levied. It is presumed that applicants would need to re-open previous assessments on their Sars E-filing profile and resubmit tax returns for these periods.
Both the exchange control regulations and income tax Acts are extremely technical in nature and potential contravention may well be error of omission. This is why it is important to take appropriate advice in this regard.
With the amnesty application period running for six months, from 1 October 2016 to 31 March 2017, South Africans have a generous opportunity to regularise their affairs.
South African residents who believe that they may have funds offshore that contravene either or both exchange control and tax regulatory provisions should take professional advice to ensure that, if necessary, they avail themselves of the terms of the 2016 amnesty.
*Tony Barrett is financial advisory wealth manager at FNB.
