Exchange Control
1879. Voluntary disclosure programme
October 2010 - Issue 134

As foreshadowed in an announcement by the Minister of Finance his Budget Speech of 17 February 2010, the Exchange Control Department of the South African Reserve Bank has released for public comment a draft Exchange Control Voluntary Disclosure Programme (VDP) as well as an amendment to the Exchange Control Regulations of 1961, to be included as Regulation 24.

The VDP deals with the way in which contraventions of the Regulations will be regularised, whilst Regulation 24 provides for the granting of administrative relief.

Regulation 24

For the duration of the prescribed period, the proposed Regulation 24 will authorise the Treasury, or its delegate, to invite persons who have contravened the Regulations to apply to have the contraventions regularised. An affidavit or solemn declaration in regard to the contravention will be required.

Purpose of the voluntary disclosure programme

The VDP is intended to encourage persons who are subject to the Regulations and who may have contravened them, to come forward, disclose and thereby regularise their contraventions, subject (where applicable) to the payment of a levy. The draft VDP makes provision for the following three categories of procedures.

Disclosure and regularisation

In this category, natural persons and corporate entities who have contravened specified provisions of the Regulations will be entitled, by declaration and disclosure to Exchange Control through an authorised dealer, to regularise the contraventions. Disclosures and declaration falling into this category will not attract a levy and relate to the following.

In respect of natural persons, declarations made by –

i)          immigrants to disclose their foreign assets; and

ii)         failure by residents to disclose -

a)        foreign inheritances and legacies received prior to 17 March 1998,

b)        foreign income earned prior to 1 July 1997;

c)        foreign loans (with recourse to the Republic of South Africa) raised to acquire a foreign asset prior to 28 February 2010 in contravention of the Regulations;

In respect of corporate entities, declarations by residents of –

i)          contraventions, prior to 28 February 2010, of the provisions of an approval relating to an approved foreign investment and which relate to the submission of financial statements and progress reports, the lodging of share certificates, the placing on record of the expansion of foreign investments, the declaration of dividends and their remittance to the Republic prior to 26 October 2004, and the disposal of all or part of a foreign investment;

ii)         unauthorised foreign loans (with recourse to the Republic) raised by them prior to 28 February 2010, provided such foreign loans accord with the applicable Exchange Control policy;

iii)        the acquisition of foreign investments prior to 28 February 2010 which are unauthorised and which accord with applicable Exchange Control policy. Where declaration and regularisation are not permitted in terms of this provision, applicants are entitled to apply for general administrative relief.

Administrative relief for loop structures and donors to discretionary trusts

In terms of this category, applications are to be made pursuant to the provisions of Regulation 24, and in this regard-

i)          qualifying residents (both natural persons and corporate entities) who had, prior to 28 February 2010, entered into "loop structures" may regularize the transactions and will be required, as part of such reguiarisation, to dispose of the interest held via a non-resident entity to a resident within 180 days of submitting the application. This is to be disclosed to Exchange Control in an application through an Authorised Dealer and will attract a levy equal to 10% of the applicable funds;

ii)         a resident who is a donor (or the deceased estate of a donor) of a discretionary trust, which is not a resident, may elect that the foreign assets held by such a discretionary trust prior to 28 February 2010 be deemed to be held by such resident. This is to be disclosed to Exchange Control in an application through an Authorised Dealer and will attract a levy equal to 10% of the value of the foreign assets disclosed.

General administrative relief

Applications in this category are to be made pursuant to Regulation 24.

Residents (both natural persons and corporate entities) who have contravened any of the provisions of the Regulations at any time prior to 28 February 2010, including contraventions involving the ownership of an unauthorised foreign asset (excluding bearer instruments) will be entitled, by providing the required information, to apply to have such contraventions regularised. Applications under this category may be made directly to Exchange Control or through an Authorised Dealer for onward submission to Exchange Control.

The levy payable by qualifying residents, which must be remitted from funds held abroad, is an amount equal to 10% of the market value of the unauthorised foreign asset, disclosed as at 28 February 2010. Where the qualifying resident has no offshore funds available to pay the levy, a local payment will be permitted subject to an additional levy of 2%.

Where a qualifying resident has exited funds in contravention of the Regulations and has no foreign assets, a levy of 12% on the amount exited in contravention will be payable.

All disclosures and applications made in terms of the draft VDP are to be made before 31 October 2011.

Overview

The VDP for taxes is not an amnesty. However, the VDP for exchange control would appear to be so, as valuable concessions are being offered. Applicants will not be prosecuted, assets will not be forfeitable and a nominal levy will be exacted.

The scope of the relief offered under the VDP is more extensive than applied in earlier amnesties in that companies are permitted to apply.

PriceWaterhouseCoopers

Draft Exchange Control Voluntary Disclosure Programme

Draft Regulation 24