Global Courant 2023-05-16 11:31:19
Trusts have come under more scrutiny in South Africa, with new laws and tax initiatives cracking down on non-compliance.
Wealthy families and businesses often use trusts to protect and distribute assets, minimize taxes, preserve the privacy of their assets, and control the timing and terms of intergenerational transfers.
Following the legislative fallout from the Financial Action Task Force (FATF), an international watchdog, which found that South Africa was insufficiently regulated in counter-terrorist financing and anti-money laundering strategies, the country embarked on a rapid legislative process that several financial laws were amended, including the Trust Property Control Act, 1998.
The new amendments, as outlined by the General Laws (Anti Money-Laundering and Combating Terrorism Financing) Amendment Act, seek to address a shortcoming in beneficial ownership transparency in South Africa’s regulatory framework.
President Cyril Ramaphosa signed the amendments into law on April 1, 2023.
They mainly relate to defining ‘beneficial property’ in accordance with international standards – which refers to people who benefit from and have title to assets held in a trust.
Trust beneficiaries are considered beneficial owners as they may receive income, distributions or other benefits from the trust’s assets. These benefits all lead to increased tax liability and compliance steps.
In the context of a company, a beneficial owner also refers to an individual or group that has ultimate control or ownership of a financial institution, whether or not their name is under which the company is registered.
In a statement earlier this month (May 4), the Ministry of Justice and Constitutional Development reiterated South Africa’s obligation under the new amendments.
The department stressed that members who fail to comply with the amendment bill will face severe penalties if found guilty by a court.
Under the amendment law, a trustee commits an offense if he or she does not:
Informing an accountable institution that they are acting in a trustee capacity that the relevant transaction or business relationship involves trust property. Record the details of the accountable institution. Record and record the beneficial owner information of a trust. of beneficial ownership information File a register of beneficial ownership information with the Master of the High Court.
The department added that a trustee convicted of any of the offenses listed above could be fined up to R10 million or imprisoned for up to five years, or both fine and jail.
Before the amendments, the 1988 Trust Property Control Act did not provide for beneficial ownership reporting and therefore had no prescribed penalties for non-compliance, the department said.
South Africa’s Financial Intelligence Center (FIC) has also committed to increasing transparency through changes to the economic ownership framework.
The FIC intends to renew the process of examining trusts, corporations and partnerships to identify individuals involved in or having an interest in such entities.
Xolisile Khanyile, the FIC director, said providing authorized parties with access to beneficial ownership information would greatly aid efforts to protect the financial system from unauthorized activity.
Khanyile added that understanding both the legal and beneficial ownership of commercial vehicles is crucial in helping appropriate authorities, especially law enforcement and the FIC.
The taxman
While a “beneficial owner” is not necessarily defined in the country’s tax code, guided by SARS and international standards, a taxpayer must record the information of a trust’s settlor, trustees, grantor, protector, and beneficiaries in a new online system.
Following the findings of the FATF, the online system was introduced in mid-February of this year. SARS said the recent improvements to online registration for trusts (eFiliing) now allow foreign and collective investment trusts to register without the mandatory trust registration number.
SARS said the following trust types will still be required to provide a Trust registration number: Inter vivos Trusts, Testamentary Trusts, Estate CGT Trusts and Special Trusts.
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