Unveiling transparency: New SARS and CIPC Rules on Beneficial Ownership

By Dewald Pieterse and Dr Hendri Herbst

As of 16 September 2024, the South African Revenue Service (‘SARS’) has implemented the latest iteration of the ITR14 and ITR12T Income Tax Returns for companies and trusts respectively on the eFiling platform. Although various updates to the returns have been made, the most far-reaching is arguably that it is now a strict requirement for a taxpayer to disclose the number of beneficial owners of the company or trust, as well as the personal details of every beneficial owner. This article will briefly discuss the new beneficial ownership requirements and the information that is required to be disclosed.

The only enterprises which are allowed to enter “0” as the number of beneficial owners are non-profit cooperations without members, cooperative societies or voluntary associations. For all other enterprises, the beneficial ownership information is mandatory, with a maximum of 9 entries being allowed at present.

It is important to note that the return does not allow a taxpayer to enter the details of its holding company or ultimate holding company, but instead requires the details of all of the natural persons (so-called “warm bodies”) which directly or indirectly hold a beneficial interest in the securities of the entity, exercise control over the entity or materially influence the management of the entity. This aligns with the global trend of increased financial transparency and regulatory oversight in an effort to combat financial crime and the funding of terrorist activity. In the South African context, it is informed especially by the attempt to remove South Africa from the grey-list of the Financial Action Task Force.

In a related development, the Companies and Intellectual Property Commission (‘CIPC’) in a media release on 28 June 2024 announced that the filing of Annual Returns would, effective 1 July 2024, strictly require Beneficial Ownership Declarations to be submitted, and that companies and close corporations would be precluded from filing Annual Returns unless an updated Beneficial Ownership Declaration has been submitted. Failure to comply could lead to penalties for late filing, enforcement action through the issuance of a compliance notice, referral for deregistration and even final deregistration due to non-compliance.[i]

Between the beneficial ownership disclosure requirements imposed by SARS and the CIPC, it is important for taxpayers to note that enhanced disclosure is here to stay, and that it is imperative for taxpayers to ensure that their beneficial ownership information is updated and complete. It is also essential for taxpayers to maintain consistency in their submissions to SARS and CIPC, as these bodies have indicated that they will be “comparing notes”.

The beneficial owner of the section of the new income tax return requires the following information for each beneficial owner[ii]:

• First name
• Other name
• Surname
• Initials
• Date of birth
• ID number
• Passport number, along with the passport’s country of issue and issue date
• Whether the individual is registered for tax in South Africa
• Tax reference number
• Email address
• Reason for beneficial ownership

The reasons for beneficial ownership should also be indicated, with the following options to choose from on the ITR14:

1. Holding of beneficial interest in the securities of the company.
2. Exercise of, or control of the exercise of the voting rights associated with securities of the company.
3. Exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of the company.
4. Holding of beneficial interests in the securities, or the ability to exercise control, including through a chain of ownership or control, of a holding company of that company.
5. Ability to exercise control, including through a chain of ownership or control, of a juristic person other than a holding company of that company; a body of persons corporate or unincorporate; a person acting on behalf of a partnership; or a person acting in pursuance of the provisions of a trust agreement.
6. Ability to otherwise materially influence the management of the company.

As this disclosure will be required henceforth for all ITR14 and ITR12T returns, it is imperative that taxpayers ensure that they maintain a register including the relevant information of all beneficial owners so that returns are completed accurately from the outset. Importantly, to the extent that SARS may view erroneous or incomplete beneficial ownership disclosure as misrepresentation or non-disclosure of material facts, the taxpayer will risk non-prescription of returns in terms of section 99(2) of the Tax Administration Act 28 of 2011, which would permit SARS to investigate returns and make additional assessments beyond the ordinary prescription periods.

In conclusion, the accurate and comprehensive disclosure of beneficial ownership is not only a statutory requirement but also a critical aspect of maintaining transparency and compliance within the South African tax regime. We recommend that taxpayers work together with their tax advisors to ensure that their beneficial ownership information is compiled as soon as possible so as not to fall foul of the new requirements. Where a taxpayer suspects that they are already in breach of these requirements, we recommend that advice is promptly obtained to ensure that the appropriate remedial actions can be taken.

If you wish to discuss these topics, please contact: WTS Renmere, South Africa

[i] See further: https://www.cipc.co.za/wp-content/uploads/2024/06/Media-Release-CIPC-enforces-BO-filing-with-ARs-01-July-2024.pdf

[ii] See page 18-19: https://www.sars.gov.za/wp-content/uploads/IT-GEN-04-G01-How-to-complete-the-Income-Tax-Return-ITR14-for-Companies-External-Guide.pdf