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You can’t hide your offshore assets

Monday, 18 April 2016   (0 Comments)
Posted by: Author: Laura du Preez
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Author: Laura du Preez (IOL)

The Panama Papers should sound the alarm for any South African resident who still thinks it’s possible to hide offshore investments from the authorities here.

South Africans are free to invest offshore within the exchange-control limits (see "What you should know about investing offshore”, below), but the days of using trusts or companies to hide these investments from the tax and exchange-control authorities are over.

If you have undeclared offshore investments or trusts, you should make use of the coming tax amnesty – formally known as the special voluntary disclosure programme (VDP) – announced in the Budget, Rhodes Business School Tax Professor Matthew Lester told financial planners at a Financial Planning Institute tax seminar this week. The special VDP is due to start on October 1 and will run for six months.

(For more information about the special VDP, go to the link "How the special voluntary disclosure programme works” at the end of this article.)

Lester, who is also a member of the Davis Tax Committee, said the special VDP is likely to be your last opportunity to regularise your offshore assets.

If you do not avail yourself of the amnesty, you should emigrate and join your money offshore, or be close to death, because the consequences of being caught are dire and include going to jail, he warned.

National Treasury this week released for comment an amended version of draft legislation outlining how the special VDP will work.

Lester also spoke at an Old Mutual Investment Group conference this week. He said although 43 000 people applied for the 2004 "grey money” amnesty, it did not convince South Africans to regularise all their affairs.

Many people applied for the amnesty in relation to personal assets held in their accounts, but, on the advice of the administrators of offshore trusts, they did not apply for amnesty for assets held in foreign trusts, he told the conference.

The administrators assured people that the identity of the true owner of the assets (the person who controls them) would remain secret, because the letter of wishes was protected by client privilege. (The settlor or founder of a trust draws up a letter of wishes that is not binding on the trustees, but sets out how the settlor wants the assets in the trust to be used.)

The 2004 amnesty was offered to residents who took money out of the country illegally or had offshore investments without declaring them for tax purposes before the introduction of residence-based taxation.

The rationale for the special VDP is that the Organisation for Economic Co-operation and Development has developed a common reporting standard for the exchange of financial information between tax jurisdictions.

According to law firm ENSafrica, almost 100 countries have agreed to adopt the standard, and South Africa will become a participant from September next year.

By March 2, only Bahrain, Nauru, Panama and Vanuatu had not indicated whether they would participate, ENSafrica says.

Hanneke Farrand, the head of the private clients department and a tax director at ENSafrica, says the global drive towards transparency will make it virtually impossible to hide offshore assets. If you invest in a jurisdiction that might enable you to avoid disclosing your assets, this could be viewed by the South African Revenue Service (SARS) as a reason to investigate you for tax avoidance. Failure to disclose your assets would put you at risk of being prosecuted for a criminal offence.

The implication for South African residents is that financial information held in any participating jurisdiction will eventually be brought to the attention of SARS, ENSafrica says.

If circumstances warrant it, SARS will issue requests for further information and audit your affairs in order to bring the undisclosed funds into the South African tax net, ENSafrica says.

The leaking of information about offshore accounts has become common. Last year, a network of journalists exposed 100 000 people and entities that had US$102 billion stashed in accounts at Swiss banking group HSBC. The records included the details of 585 South Africans with assets of $2.09 billion.

After the Panama Papers were leaked this month, Finance Minister Pravin Gordhan issued a statement saying that SARS, the Financial Intelligence Centre and the South African Reserve Bank (SARB) will investigate South Africans who, according to the papers, have not complied with the law.

It is not illegal to hold funds in an offshore bank, as long as you obtain approval to take the money offshore and disclose the income and capital gains to the authorities.

Lester told Personal Finance it was significant that Gordhan said that South Africans fingered in the Panama Papers will be pursued; he did not advise them to use the VDP. This showed that the authorities have little sympathy for those who are caught transgressing the law. In fact, he said it was surprising that the government had been so generous in offering another amnesty.

The consortium of journalists who shared the Panama Papers has threatened to release in May the names of people connected to offshore entities set up in Panama. Lester says if you know you are named in the papers, you should apply for the "permanent” VDP provided for in the Tax Administration Act, and not wait for applications to open for the special VDP.

You do not qualify for the VDP once SARS or the SARB have started to investigate your affairs.

He says the following developments have taken place since residence-based taxation was introduced in 2001:

  • The Tax Administration Act provides that you can be held liable for unpaid tax for however long you have failed to declare it; you can be penalised up to 200 percent of any tax you have failed to declare; and you can face criminal charges for failing to pay tax.
  • Many South Africans who took money offshore because they expected to emigrate have not left the country. They are now too old or do not have the skills to get into other countries, or they no longer want to leave because their children have decided to stay here.
  • Many offshore trusts are administered by offshore companies, but, because they are effectively controlled by trustees resident in South Africa, their offshore status is questionable.
  • Many offshore trusts were set up as discretionary trusts, but the beneficiaries often have a clear right to the assets in the trusts, which makes their discretionary nature questionable. This might have tax implications for the beneficiaries.
  • The outcry over global equality means there is little sympathy for people who have built up wealth offshore without paying tax.
  • The threat of international terrorism has made it noble to hack into computer systems to expose people with secret bank accounts.


The Panama Papers are a leaked set of 11.5 million confidential documents that provide details of more than 214 000 offshore companies listed by Panamanian corporate service provider Mossack Fonseca. The documents show how some wealthy individuals, including public officials, hid their assets from public scrutiny.

The papers identified five heads of state or government leaders from Argentina, Iceland, Saudi Arabia, Ukraine and the United Arab Emirates, as well as government officials, close relatives and close associates of various heads of government of more than 40 other countries. One of the individuals named in the papers is Khulubuse Zuma, the nephew of President Jacob Zuma.

Although the use of offshore business entities is not illegal in the jurisdictions in which they are registered, during their investigation reporters found that some of the shell companies might have been used for illegal purposes, including fraud, drug-trafficking, and tax evasion.

An anonymous source made the documents available in batches to German newspaper Süddeutsche Zeitung beginning in early 2015. The newspaper shared them with the International Consortium of Investigative Journalists, which shared them with 107 media organisations in 78 countries. – Source: Wikipedia


South Africa has a residence-based tax system, which means you must pay tax in this country on your assets regardless of where in the world they are.

If you have not disclosed assets to the South African Revenue Service for tax purposes, it is likely that you are in contravention of the tax legislation.

You are entitled to invest offshore, as long as you do not contravene the exchange control and tax legislation. You are entitled to take up to R10 million offshore as a foreign investment allowance and R1 million annually for any purpose, including travel and investment.

The South African Reserve Bank monitors cross-border flows, and certain transactions must be approved by authorised dealers.

Tax havens are countries with low tax rates that make it possible for investors to hide their accounts from the authorities in the countries where they live. Fewer and fewer tax havens are agreeing to keep accounts secret, and the few that do are likely to charge a high price.

Even in these countries, there is a risk that your personal details will be leaked, particularly if the tax haven’s investment and trust industry is not very professional.

Financial institutions and certain people, such as accountants and estate agents, are obliged, in terms of the Financial Intelligence Centre Act, to report "suspicious” financial activities, including possible tax-evasion and money-laundering.

More stringent requirements on institutions to know their clients and beneficial owners (the people who control a juristic entity, such as a company) have been proposed in the Financial Intelligence Centre Amendment Bill to underpin the reporting requirements of the Organisation for Economic Co-operation and Development.

This article first appeared on



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