Stellentrust in strategic alliance with St James Global September 2016

It is a given that the Tax Man will have the information regarding your offshore assets within the foreseeable future, if not already. It is now the time to prepare for such SVDP that will
commence from the 1st of October 2016, if your offshore assets are undisclosed.

Without going into the detail, during a SVDP the following need to be taken into account:

  • Seed Capital used to fund the off-shore investment
  • Tax to be paid on taxable earning as calculated from 1 March 2010 to date
  • Value of the off-shore investment as at 29 February 2016
  • If you repatriate the off-shore investment – 5% levy
  • If you do not repatriate the investment – 10% levy
  • If the abovementioned levy is paid from SA – additional 2% levy to be paid.

The question, according to Adv. Carstens, is: “What do you do with your off-shore assets after a SVDP.  Do you bring the money back to SA or do you leave it overseas?” This is where estate planning is key-bridging the gap from where you are to where you would like to be.

It is still a well-established objective of prudent financial planning to externalise some of your investments to:

  1. negate the devaluation of the rand;
  2. diversify investments;
  3. address perceived political uncertainty;
  4. make provision for retirement or a rainy day; and
  5. ensure your wealth is made estate duty friendly.

Where offshore trusts were created to house undisclosed offshore funds, one must remember that a trust cannot apply for relief by way of the SVDP and therefore the founder and/ or the beneficiaries will have to deem these undeclared assets their personal assets. Once an individual is granted relief under the SVDP, those assets now form part of his/her estate and upon death, estate duty, currently at 20%, will be payable on any dutiable amount, after deduction of the abatements.  This could mean additional Estate Duty of R200 000 for every million rand coming into his/her dutiable estate.

Once an individual’s off-shore affairs have been regularised, proper estate planning continues to be vital in order to still achieve the abovementioned objectives. St James global in alliance with our fiduciary partner Stellentrust can assist you with the structuring of your overall estate plan that will enable you to still achieve your externalisation objectives 1 – 5. In doing so we will amongst others take into account:

  • SA residency rule as tax basis
  • Foreign investment and discretionary allowances
  • Davis Tax Committee recommendations as regards foreign trusts;
  • Monies from a non-South African source: inheritance, donations and offshore earnings that is currently not estate dutiable;
  • International Retirement Annuity
  • SARS Notice 212 – Reportable arrangement if a trust structure is used and the offshore investments exceed R10m
  • Immigration and offshore assets
  • Separate wills to deal with assets in different jurisdictions, different probate formalities and the effect of Brussels IV in EU countries; and
  • Proper international business entities for global trading.

What about historical offshore assets?

Where taxpayers do not have any offshore assets post 1 March 2010 because they have taken funds abroad and spent them but might still want to apply for the SVDP because they are concerned that they might be identified through one of the global leaks, such taxpayers may also apply for the SVDP.  Where the value cannot be determined with certainty, the Commissioner may agree to accept reasonable estimate of that value.

In an explanatory memorandum, dated 18 July 2016, National Treasury puts forward the following example:

Example:

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Jane Roe and John Doe did not declare 10% of the income from their jointly operated long distance transport business from 1990 to 2001. Using a British Virgin Islands trust and a Panamanian company, they invested the proceeds in a similar business in South America. Unfortunately they did not fully understand the local market conditions, so the business went bankrupt in 2003 and they lost their entire investment. They have felt no pressing need to come forward up to now, since they no longer have illicit assets offshore.

With the leak of the Panama Papers they fear that SARS will unravel the structure they put together and detect their tax evasion. The provision above allows them to make use of the SVDP by determining (or if this is impossible, estimating) the highest value of their illicit offshore assets from 1990 to 2001. Assuming this value to be R14 million in total or R7 million each, this amount will be deemed to be the value for SVDP purposes. As a result, 50% or R3.5 million will be included in each of their taxable incomes. If they are taxed at the marginal rate of 41%, that comes to R1 435 000 each.

In conclusion

Adv. SN Carstens: “After a successful SVDP there is definitely light at the end of the tunnel. Once you have regularised your offshore affairs, take the time to do proper planning to maintain and grow your hard earned assets within the ambit of the law.”

“He who fails to plan,
Plans to fail”

St. James Global is an authorised financial services provider (FSP no. 45184) & Member of GlobalNet · one of the largest international networks of independent financial advisors, operating in over 45 countries with over 150 corporate members.