The 2024 tax season is underway, and the South African Revenue Service (SARS) has introduced a new requirement for individual taxpayers: the disclosure of beneficial ownership information. Previously, this reporting was limited to companies and trusts. However, SARS has expanded its focus to include individual taxpayers, emphasising the importance of transparency and compliance. Let’s take a look at what you need to know about beneficial ownership information reporting requirements.
South African tax news – SARS mandates beneficial ownership reporting for partners
Earlier this year, SARS announced that individual taxpayers participating in partnerships must now disclose beneficial ownership information on their 2024 personal income tax returns. This requirement applies to all partners involved in the partnership’s business activities.
What is beneficial ownership tax in South Africa?
Beneficial ownership tax in South Africa is not a specific tax type. Instead, it’s a tax law concept that requires individuals and entities to disclose the ultimate owners or beneficiaries behind a company, trust, or partnership.
Here’s how it works: SARS mandates that companies, trusts, and partnerships disclose their beneficial owners. This includes individuals who ultimately control or benefit from the entity, even if they don’t hold a direct ownership stake. Individuals have a reporting requirement: they must provide their details, including name, address, and tax identification number, to SARS. This information is collected and used to assess tax liabilities, prevent tax evasion and ensure compliance with international standards. Failure to disclose beneficial ownership information can result in audits, penalties, and other legal actions.
As such, beneficial ownership is not a tax itself but a requirement for transparency and accountability in financial transactions.
Why does SARS require beneficial ownership information?
The global trend towards greater financial transparency has led to a growing demand for beneficial ownership (BO) information reporting. This information is essential for combating tax evasion, money laundering, and other financial crimes. SARS’ requirement for beneficial ownership information aligns with international standards and domestic laws that promote accountability and transparency.
In South Africa, various legislation supports the requirement for beneficial ownership information:
- Companies Act, 2008: Companies must disclose the individuals who ultimately own or control the company.
- Trust Property Control Act, 1988: Trustees are required to submit a beneficial ownership register to the Master of the High Court.
- Financial Intelligence Centre Act (FICA), 2001: Institutions are obligated to identify and verify beneficial owners to prevent money laundering and terrorist financing.
- Identifying beneficial owners can be complex. In partnerships, “beneficial owners” may include individuals, companies, or trusts and their underlying beneficial owners who ultimately control or benefit from the partnership.
Why does beneficial ownership matter?
Identifying beneficial owners, the individuals who ultimately benefit from an asset or income is vital for several reasons:
- Accurate tax assessment: Knowing the beneficial owners allows SARS to accurately determine tax liabilities and prevent tax evasion.
- Combating financial crime: This information assists authorities in investigating money laundering, other illicit activities, and cross-border tax evasion.
- Enforcing tax compliance: Ensuring that taxpayers meet their obligations in the correct jurisdictions and identifying beneficial owners is essential for effective tax enforcement.
Beneficial ownership information reporting – how this affects you
By disclosing beneficial ownership information, you actively promote transparency and accountability within the tax system. Each taxpayer plays a significant role in this. However, failing to comply with SARS’ beneficial ownership information reporting requirements may lead to audits, increased reporting obligations, and penalties.
Beneficial ownership information reporting requirements
Beneficial ownership refers to the individuals who ultimately control or benefit from a company, trust, or partnership, even if they don’t hold a direct ownership stake. SARS wants this information disclosed to ensure transparency and prevent financial crimes.
Here’s what SARS is looking for – beneficial ownership information reporting
- Disclosure: Companies, trusts, and partnerships must disclose their beneficial owners to SARS.
- Individual details: Beneficial owners must provide their personal information, including:
- Name
- Address
- Tax identification number
- Nature of interest: The nature of the beneficial interest (e.g., ownership, control) should be specified.
- Reporting frequency: The frequency of reporting may vary depending on the entity’s type and activities.
- Record keeping: Entities must maintain accurate records of beneficial ownership information.
Failure to comply with beneficial ownership reporting requirements can lead to audits, in which SARS may conduct in-depth investigations to verify compliance. Penalties for non-compliance are possible, and in severe cases, legal action may be taken against non-compliant entities.
Beneficial ownership reporting requirements for expats
South Africans living overseas must disclose their beneficial ownership information to SARS, regardless of residency status. This is because:
SARS’ jurisdiction extends to South African citizens and residents, regardless of their physical location.
- Your tax residency status in South Africa determines your tax obligations. You may still be subject to certain tax obligations even if you’re a non-resident.
- If you have a beneficial interest in a South African company, trust, or partnership, you must disclose this information to SARS. You may also need to report foreign assets and income, depending on your tax residency and the nature of your assets.
FinGlobal: cross-border financial specialists for SA expats
Given the complexities of international tax laws and beneficial ownership reporting, consulting with a tax professional or financial advisor is smart. At FinGlobal, our team includes certified international financial planners, lawyers, chartered accountants, tax specialists, and bankers who provide expertise in all areas of cross-border finance. They can provide tailored guidance based on your specific circumstances, to ensure compliance with South African tax laws and minimise potential risks. FinGlobal can also assist with tax emigration, tax clearance, retirement annuity withdrawal and more. To get started with our convenient, reliable cross-border financial and tax services, please leave your contact details in the form below, and we’ll get in touch!