Most of you may look at the heading of this article and assume it bears no relevance to your circumstances. Unfortunately, we have often found that clients do not know that they have fallen foul of their tax reporting obligations or that something needs to be done. Below, we explore the Voluntary Disclosure Programme (VDP), and by asking some questions, we hope to help you assess whether you should be looking at this programme to regularise any of your tax affairs.
Please note that this article refers ONLY to the South African Revenue Service (SARS) VDP programme, and it does not include non-compliance on exchange control matters, which is regulated by the South African Reserve Bank (SARB).
What is the permanent VDP?
‘The South African Revenue Service (SARS), in terms of the Tax Administration Act No. 28 of 2011, has made provision for the Voluntary Disclosure Programme (VDP) to be permanently available to a qualifying individual, company or trust that seeks to voluntarily disclose and regularise their tax affairs. This step is aligned to the SARS’ strategic objective, which seeks to provide clarity and certainty as well as make it easy and seamless for taxpayers and traders to comply with their obligations.’ (extract from SARS.gov.za website).
Why is there a VDP?
The SA tax landscape is complex and challenging. Over the years, SARS (and the SARB) have put specific VDPs (often referred to as amnesties) in place with fixed rules that apply to the various VDPs. There was a VDP in 2003/2004 and several more since then, the last being in 2016, referred to as a Special Voluntary Disclosure Programme (SVDP). The VDP we cover in this article is a PERMANENT VDP and has been implemented as a mechanism promoting tax compliance without punitive measures. It acknowledges that taxpayers may unintentionally fall short of compliance for several reasons.
Features of the VDP:
- Scope of disclosure: The VDP covers a broad spectrum of undisclosed tax affairs, including unreported income, incorrect tax returns, and other tax-related liabilities. This includes local and offshore assets – we have come across both types of assets requiring disclosure, but offshore seems to be a particular focus.
Perhaps a few questions would assist here as further explanation and give you an idea as to whether you may be non-compliant:
- Have you applied for the Portuguese Golden Visa programme and bought a property you rent out? If so, have you declared the rent?
- Have you been ‘gifted’ property in the UK and not declared it and any income you may be earning?
- Have you sold investments and omitted to include the capital gains in your tax return?
- Have you earned interest or ‘deemed’ interest on loans you have made?
- Do you have an offshore share portfolio but have not declared the dividends earned?
- Have you received a distribution from an offshore trust and not declared it?
Please note the fact that you have paid tax in another jurisdiction does not mean you are tax-compliant in SA!
- Eligibility: The VDP is open to individuals and businesses who wish to rectify their tax affairs voluntarily. The disclosure must be voluntary and must not result in a refund. The taxpayer must not have disclosed a similar default in the preceding five years, and the taxpayer must initiate the process BEFORE any prompting or investigation by SARS. It is important to note that the current Common Reporting Standards (CRS) legislation in place means that SARS will likely find you considering the financial data it receives on global and local transactions. Non-compliance is not considered a VDP offence.
- Penalty relief: The primary incentive to participate in a VDP is the potential relief from specific penalties. The taxpayer must still pay the outstanding taxes, but penalties typically levied for non-compliance may be reduced or waived. The VDP process is silent on the remission of interest.
- Limited criminal prosecution: Taxpayers who voluntarily disclose their undisclosed tax affairs are generally protected from criminal prosecution.
- Confidentiality: SARS treats the information disclosed in the VDP as confidential.
- Application process: This involves submitting a detailed disclosure statement to SARS and includes a comprehensive overview of the undisclosed tax affairs, the nature of the non-compliance, the periods involved (often several years) and the corrective measures taken.
Our recommendation on applying is to consult a VDP expert, i.e. someone who does this for clients regularly and understands precisely how the authorities require the information to be submitted and the possible queries the tax authorities will raise. The more detailed and accurate the information you provide, the better your chances of a successful VDP. The application has to be submitted via e-filing.
Benefits of the VDP
Some of the benefits to consider include the following:
- Avoiding harsher penalties – one can avoid the penalties that would be imposed if SARS discovers the irregularities before they are voluntarily declared.
- Legal certainty – SARS cannot pursue further action once the disclosure is accepted.
- Global tax compliance – with the increasing focus on international tax transparency, the VDP assists individuals with offshore assets in complying with global tax standards.
In conclusion, it is important to notify SARS of any non-compliance before the tax authorities contact you. If you think there is an issue and/or that you may be subject to exchange control non-compliance, please contact us to discuss it so we can ascertain whether there is a problem and the best way to tackle it. As mentioned, in our experience (and we have been involved in several VDPs since 2003), it is always better to use the services of an expert.
Please email Di Haiden at firstname.lastname@example.org if you require further assistance.