South Africa to ramp up beneficial ownership requirements and target non-resident employers

The South African government tabled the Tax Administration Laws Amendment (TALA) Bill in parliament on 1 November, when Finance Minister Enoch Godongwana delivered his Medium-term Budget Policy Statement (MTBPS).

South Africa was placed on the Financial Action Task Force’s (FATF) ‘grey list’ of countries subject to increased monitoring in February. The FATF is the global inter-governmental body that promotes policies and sets international standards for Anti-Money Laundering and Combating Terrorism Financing (AML/CTF).

The listing followed South Africa’s poor performance in its 2021 mutual evaluation. It committed to work with the FATF to address its strategic deficiencies and made significant progress during the observation period, passing two principal Amendment Acts in 2022. However, although an FATF assessment in January found that South Africa had made positive progress, reducing the 67 Recommended Actions to 8 strategic deficiencies, it was grey listed while these were addressed.

The TALA Bill provides for changes to the definition of ‘beneficial owner’ of a company, trust and partnership to include a person who ‘directly or indirectly, ultimately owns, or exercises effective control’. In the accompanying memorandum, SA Treasury said the change was designed to better align South Africa’s AML/CTF framework with the FATF standards.

The National Strategy on AML/CTF is to develop an integrated and harmonised beneficial ownership framework of beneficial ownership registries and other sources to provide law enforcement and other authorities, including SARS, with access to reliable information about legal and beneficial ownership, in line with the FATF’s beneficial ownership standards and Immediate Outcome 5 of the FATF’s action plan for South Africa.

Treasury said the definition also seeks to achieve consistency with the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment (GLA) Act and to take account of the country’s deficiencies in its AML/CTF controls and consequent higher risk.

Beneficial ownership information, it said, was essential for tax administration because it helped to ensure transparency and accountability in financial transactions. Identifying the individuals who ultimately benefitted from an asset or income enabled tax authorities to determine tax liabilities accurately and prevent tax evasion, while such information could also assist other competent authorities in the investigation of money laundering and other illicit activities.

Beneficial ownership information would further facilitate international co-operation and the exchange of tax-related information among jurisdictions. This co-operation was crucial in detecting and addressing cross-border tax evasion and ensuring that taxpayers fulfil their obligations in the appropriate jurisdictions, Treasury said.

In April, the Companies & Intellectual Property Commission (CIPC) launched its beneficial ownership register for companies and close corporations with the intention of establishing a register of natural persons who own or exercise control over legal entities. According to the CIPC, anyone with more than a 5% beneficial ownership (BO) of a company or close corporation much provide the relevant information.

The government also amended the Trust Property Control Act obliging trustees to file and keep records of the BOs of trusts. The Act defines BOs as founders, trustees, named beneficiaries and any individuals who exercise effective control of any trust.

In his MTBPS, Godongwana said government departments and agencies – including the National Prosecuting Authority, the South African Reserve Bank (SARB), the Financial Sector Conduct Authority (FSCA) and SARS – had been working hard to address the deficiencies that resulted in South Africa’s grey-listing by the FATF in February.

The FATF noted at its plenary meeting in October that the work was showing positive results, with South Africa having addressed 15 of the 20 technical deficiencies in its legal framework and making good progress on 17 of the 22 effectiveness action items, including two that are now deemed to be largely addressed, the minister said.

“However, there is also a significant amount of work that must still be done, particularly with regard to the investigation and prosecution of complex money laundering cases and terror financing, the identification of informal mechanisms for remitting money around the world, and the recovery of the proceeds from crime and corruption.”

The government expects to address all the deficiencies identified by the FATF by early 2025, Godongwana said.

The TALA Bill will also require non-resident employers to deduct employees’ tax (PAYE – pay-as-you-earn) from remuneration paid to their employees, if they are conducting business through a permanent establishment (PE) in South Africa.

It is anticipated that, as from January 2024, all non-resident employers with a PE in South Africa must be registered as an employer with the South African Revenue Service (SARS) and deduct PAYE from remuneration paid to qualifying employees, as well as paying skills development levies (SDL) and unemployment insurance fund (UIF) contributions.

Non-resident employers without a PE in South Africa will not be required to withhold PAYE. However, if a non-resident employer without a PE in South Africa has a representative employer in South Africa – any agent who resides in South Africa and has the authority to pay remuneration – the obligation to withhold PAYE will fall on the representative employer.

If the legislation is approved, non-resident employers with a PE in South Africa or their representative must comply with local payroll compliance obligations, which include the submission of monthly payroll tax returns with payments to SARS and issuing annual employees’ tax certificates by the relevant deadlines. Non-compliance or late payments can result in a 10% penalty, plus interest.