Trusts have come under more scrutiny in South Africa, with new laws and tax initiatives cracking down on non-compliance.
Wealthy families and companies often use trusts to protect and distribute assets, minimise taxes, maintain privacy over their holdings and control the timing and conditions of transfers across generations.
Following the legislative fallout of the Financial Action Task Force (FATF), an international watchdog, finding South Africa insufficiently regulated in terms of counter-terrorist financing and money laundering mitigation strategies, the country embarked on a speedy legislative process amending various finance laws, 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 1 April 2023.
They primarily relate to defining ‘beneficial ownership’ in line with international standards – which refers to people who benefit from and have ownership rights over assets held in a trust.
Trust beneficiaries are considered beneficial owners as they can receive income, distributions, or other benefits from the trust’s assets. These benefits all lead to more tax obligations and compliance steps.
In the context of a company, a beneficial owner also refers to either a person or group that ultimately has control or ownership over a financial institution, regardless of whether their name is what the company is registered under.
In a statement earlier this month (4 May), the Department of Justice and Constitutional Development reiterated South Africans’ obligation under the new amendments.
The department stressed that members who do not comply with the Amendment Act would face harsh punishment if found guilty in a court of law.
According to the Amendment Act, a trustee commits an offence if they fail to:
- Disclose to an accountable institution that they engage within the capacity of a trustee that the relevant transaction or business relationship relates to trust property
- Record the details of the accountable institution
- Establish and record the beneficial ownership information of a trust
- Keep an up-to-date record of the beneficial ownership information
- Lodge a register of the beneficial ownership information with the Master of the High Court.
The department added that a trustee convicted of any of the offences referred to above would be liable to a fine of up to R10 million, or imprisonment for up to five years, or to both such fine and imprisonment.
Before the amendments, the Trust Property Control Act 1988 did not provide for reporting on beneficial ownership and hence, had no prescribed penalties for non-compliance, said the department.
South Africa’s Financial Intelligence Centre (FIC) has also committed itself to enhance transparency through changes to the beneficial ownership framework.
The FIC plans to revamp the process of investigating trusts, companies, and partnerships to ascertain the individuals involved or having an interest in such entities.
Xolisile Khanyile, the FIC director, said that providing authorised parties access to beneficial ownership information would greatly support efforts to safeguard the financial system against illicit activities.
Khanyile added that comprehending both the legal and beneficial ownership of corporate vehicles is crucial in aiding competent authorities, particularly law enforcement and the FIC.
Although a ‘beneficial owners’ is not defined in the country’s tax law per se, guided by SARS and international norms, a taxpayer must record the information of the founder, trustees, donor, protector and beneficiaries of a trust in a new online system.
In response to the FATF findings, the online system was introduced in mid-February this year. SARS said that its recent enhancements of online registration for trusts (eFiliing) now allow foreign trusts and collective investment schemes 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.