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South Africa Pushing For Tax Compliance By HNWIs

Friday, April 20, 2012

In reply to a question in the National Assembly, South Africa’s Finance Minister Pravin Gordhan confirmed that the South African Revenue Service (SARS) has taken steps to improve income tax compliance among high net worth individuals (HNWIs).

The question asked whether the National Treasury has taken any steps to recover more than ZAR50bn (USD6.4bn) owed to SARS by 9,300 of the country’s HNWIs and to register almost 7,000 of those people with a gross income of more than ZAR7m as taxpayers.

In his reply, Gordhan stated the amount of ZAR50bn reported in the media as being owed by HNWIs was, in fact, an estimate of gross income rather than tax due, and was based on a statistical extrapolation of third party data. He said that an accurate estimate of the potential tax liability of this group is not possible as each case is unique.

For example, he added, in some instances income may be held in trusts, companies or other structures, while in other cases the income may have been derived from dividends or capital growth rather than remuneration and therefore qualifies for a lower rate of taxation.

Nevertheless he disclosed that SARS is taking steps to improve compliance among HNWIs, including the establishment of a dedicated unit to handle the tax affairs of HNWIs and, as announced in the 2012 Budget Review, improvements in compliance with the tax laws will be a focus area for SARS this year.

SARS is also using its own data and data from third parties to identify failure to register as a taxpayer, undeclared income and a variety of other forms of noncompliance; and has commenced audits and investigations on a number of HNWIs and their associated entities, such as trusts and companies. Given the complexity of tax affairs of many HNWIs, audits and investigations in this segment usually require a substantial and extended commitment of resources.

He pointed out that HNWIs are often internationally mobile, with assets and activities in other jurisdictions, which demand a greater level of international cooperation. South Africa currently has 70 double taxation agreements and five tax information exchange agreements in force that provide for the exchange of information with other jurisdictions.

In addition, SARS has commenced joint audits with jurisdictions, such as Botswana, the United Kingdom and the United States with respect to HNWIs, and the legislative framework has been modified to limit arbitrage opportunities and close loopholes.

Higher capital gains tax and dividend tax rates will narrow the arbitrage gaps between normal income and capital gains, and between the income derived in an individual's hands and through a corporate entity, Gordhan said.

He concluded by noting that the information reported on by the media that there could be up to 9,300 individuals in South Africa who meet the SARS criteria for registration as an HNWI appeared to be at odds with SARS's current registration of 2,300 HNWIs.

SARS is therefore conducting follow up research and risk assessments to identify actual cases of non-compliance, including failure to register as a taxpayer. Where non-compliance is established, action is taken, including registration of the individual, and the imposition of any tax outstanding, and additional tax (understatement penalties) of up to 200% and interest on outstanding amounts.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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