The General Laws Amendment Act 22 of 2022 (“Amendment Act”) promulgated as part of legislative framework changes by South Africa to curb money laundering, has introduced key changes to the trust environment, requiring extensive beneficial ownership and other reporting by trusts. SARS is also aligning its tax and data collection imperative with these changes by requiring similar reporting as part of trust tax submissions. In this article, we review the impact of these changes on trusts.
The Amendment Act that came into effect on 1 April 2023 has introduced interesting changes relating to trusts in South Africa by amending amongst other things, the Trust Property Control Act (“Trust Act”), which now makes it a requirement for trusts to draw up a beneficial ownership register which contains all essential beneficial ownership information of the warm bodies behind each trust that receive benefits from the trust.
The Amendment Act also permits the sharing of information between authorities both domestically and internationally. This requires that beneficial ownership registers must correctly and accurately, according to required reporting standards, disclose all information to relevant authorities regarding trust beneficial owners and avoid discrepancies in the reporting thereof between different authorities.
SARS has likewise implemented the reporting of beneficial ownership information for trusts. SARS no longer only requires the submissions of annual financial statements or annual returns of trusts, but now also requires as much information as possible to ensure that they are dealing with everything as efficiently as possible. The beneficial ownership registers are one of the new requirements that SARS has implemented.
As of 1 April 2024, SARS requires proof of the beneficial ownership submission with the Master of the High Court prior to a trust submitting its annual returns. Should the beneficial ownership information not be submitted to the relevant regulatory body, SARS prohibits entities from submitting their annual returns. Failure to submit in accordance with the timelines stipulated by SARS may result in penalties for these late submissions. This new requirement of SARS has taken effect on 1 April 2024.
SARS now also requires trusts to submit resolutions two-fold in respect of trust distributions. The first resolution must be submitted at the end of the financial year reflecting the estimated distribution that a trust will declare to their beneficiaries. The second resolution must be submitted before the end of September of each year stipulating the actual distributions made to beneficiaries. Whilst these resolutions were previously only requested by SARS, they have now become a mandatory requirement. We suspect these resolutions are aimed at establishing the flow of funds from a trust to beneficial owners in light of the Amendment Act and to identify the recipients of benefit from trusts and cross-refer such to beneficial ownership information.
One can expect further collaboration in future between the Master of the High Court, SARS and other regulatory bodies, with information sharing as the backbone of such collaboration. The purpose being not only to identify owners and cashflows but also to identify reporting discrepancies and the imposition of sanctions for non-compliance. Recent statistics have shown that many South African trusts are not registered as taxpayers with SARS suggesting the presence of either tax ignorance or tax evasion. Either way, we can expect SARS to increase its focus on compliance with these requirements and zoom in on these unregistered trusts.
Despite the additional scrutiny and administrative obligations imposed on trusts, trusts remain an important tool in South African estate and corporate planning and structuring if used correctly. However, the trust administration and reporting must be done correctly and in line with the new requirements in respect of trusts or run the risk of fines, imprisonment and the attention of SARS.
Should you have a trust and be concerned about complying with the latest trust compliance requirements, do not hesitate to contact our Trust Office Team for assistance.
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