Compliance – TMMBS

Mandatory CIPC obligations for companies and close corporations for 2024- Beneficial Ownership

tmmbsonline — Tue, 05 Mar 2024 11:58:16 +0000

Mandatory CIPC obligations for companies and close corporations for 2024- Beneficial Ownership

In February 2023, South Africa was put onto the “Grey List”, resulting in South Africa being required to have increased monitoring due to various strategic, regulatory, and compliance deficiencies. In response, and with the strategic deficiencies then identified, the CIPC issued an action plan to ensure that the competent authorities and regulatory bodies have timely access to accurate and verified beneficial ownership information on legal persons, and further authorizing the CIPC to apply sanctions for breaches and/or violations by legal persons of beneficial ownership obligations.

The Companies and Intellectual Property Commission (CIPC) has announced its beneficial ownership mandate/ register for companies as well as close corporations which will go into effect as of 1 April 2024. Beneficial ownership refers to the natural person(s) who ultimately own, control, or benefit from a company or legal entity. Understanding beneficial ownership is crucial for various reasons, including preventing money laundering, combating corruption by allowing the law enforcement to be inclined when it comes to their investigations of who the ultimate owners of an entity are, and ensuring transparency in business operations.

Furthermore, it important to note that you cannot submit the yearly returns for a company or close corporation unless you have already submitted the beneficial ownership details of all the beneficial owners of that particular company or close corporation. As of 1 April 2024, it will therefore be mandatory to file the beneficial ownership information before you can submit the annual returns of a company or close corporation. Both beneficial ownership information and annual return submissions must be completed on CIPC’s portal to avoid deregistration of a company or closed corporation.

The beneficial ownership regulations require companies to disclose information about their ultimate beneficial owners. Here are key aspects related to CIPC beneficial ownership:

Definition of Beneficial Owner

A beneficial owner is an individual who directly or indirectly owns or controls more than 5% of the shares or voting rights in a company. It can also include individuals who have significant influence or control over the company through other means.

Registration and Disclosure

Companies are required to identify and register their beneficial owners with the CIPC. The information typically includes the name, nationality, residential address, and other relevant details of the beneficial owners. It also includes the financial year of the company or close corporation, as well as its financial information and records.

Changes in Beneficial Ownership

Companies must regularly update the CIPC regarding any changes in beneficial ownership within a specified timeframe.

Penalties for Non-Compliance

Failure to submit the required beneficial ownership information is tantamount to non-compliance with the Companies Act, which could result in court-ordered administrative fines. Where applicable, filing beneficial ownership information is now a legislative requirement. Furthermore, non-compliant beneficial ownership information filings will trigger possible investigations and sanctions, including compliance notices, administrative fines, and the disqualification of directors.

Access to Information

The CIPC maintains a register of beneficial ownership, and certain authorities, such as law enforcement agencies and financial institutions, may have access to this information to fulfill their regulatory obligations.

Purpose and Benefits

The primary purpose of disclosing beneficial ownership is to enhance transparency in corporate structures and prevent illicit activities such as money laundering and corruption. It enables authorities to track and investigate the ownership structure of companies and identify any potential risks.

Confidentiality and Data Protection

While beneficial ownership information is made available to relevant authorities, there may be provisions to protect the confidentiality and privacy of individuals in line with data protection laws.

International Standards

The regulations align with international standards and best practices aimed at preventing and combating financial crimes and to minimize South Africa being Grey listed again.

The big question lies in who does not need to submit information on the beneficial ownership register? Where a juristic entity, such as a trust, is the entity that has beneficial ownership of a company, whichever individual ultimately derives beneficial ownership from that trust as defined in the Trust Property Control Act 57 of 1988, as amended, must have their information declared with the Master of the High Court, not on the beneficial ownership register. Furthermore, affected companies listed on a local stock exchange are also not required to declare information on the beneficial ownership register. Lastly, State-owned companies exempted by the relevant Minister are not required to file beneficial ownership information.

No escape from SARS penalties for dormant companies

tmmbsonline — Fri, 21 Apr 2023 11:44:14 +0000

No escape from SARS penalties for dormant companies

The Tax Administration Act 28 of 2011 stipulates that SARS can issue administrative penalties for outstanding tax returns. Furthermore, SARS is authorized to charge penalties on companies that do not comply with tax laws, including companies that are dormant. Last year, SARS issued a notice stating that from 1 December 2022 admin penalties will be charged for late submission of income tax returns which are outstanding from 2007 to 2020. The recent implementation by SARS of late-submission penalties applies to all registered companies, whether actively trading or dormant.

By definition, a dormant company is a company that is registered with the relevant government authorities, in this case SARS, but is not actively trading or carrying out any business activities. In other words, it is company a company that exists in name only, without any significant operations, income, or expenses. Dormant companies are often used as a way to hold assets or intellectual property, to reserve a company name, or to prepare for future business operations. They are also used in situations where a company is temporarily not trading, such as during a period of restructuring or when awaiting the start of a project. Though not functional, dormant companies do not escape the responsibility to adhere to tax laws. In most jurisdictions, dormant companies are subject to less strict legal and regulatory requirements than active companies. However, they are still required to file certain legal and financial documents with the relevant authorities, such as annual returns, tax returns, and financial statements, even if they have no income or expenses to report.

No escape from SARS penalties for dormant companies

There are non-compliance penalties that are paid to SARS and these penalties will continue to re-occur until the submission of the unpaid tax returns. The penalties accrue monthly and are based on the estimated taxable income available to SARS, ranging from R250 to R16 000 per month and remain due to SARS for payment even after the submission of the tax returns. However, the payment of SARS penalties may vary depending on the specific circumstances including, the severity of the violation, the taxpayer's history of compliance, and any mitigating factors. For example, if a taxpayer has a history of timely compliance with tax obligations and can demonstrate that they made a good-faith effort to comply, SARS may be willing to reduce the penalty amount or offer a payment plan.

The solutions granted or available to dormant companies in the request for the remission of penalties, just to name a few are firstly, to dispute penalties if they believe they have been wrongly assessed, but this will depend on the specific circumstances of each case. Secondly, taxpayers have the option to deregister their company to evade extra tax penalties. Here is a step-by-step guide on how to close a dormant company:

Check the company’s status: Before you begin the process of closing a dormant company you should first verify that it is indeed dormant. This means that the company has not carried out any business activities such as selling goods or services, or generating revenue in the past financial year.
Notify the Companies and Intellectual Property Commission (CIPC): Once you have confirmed that the company is dormant you must notify the CIPC of your intention to close the company. This can be done via email or by submitting a form in person at the CIPC’s offices and the turnaround time is approximately 6 months. Supporting documents required are as follows:

Resolution/letter on company letterhead signed by all directors approving the intention to deregister the company-stating it is dormant and has no assets and liabilities.
Tax Clearance certificate.
Certified copy of each director’s ID not older than three months

Pay any outstanding fees and taxes: Before the CIPC can process your request to close the company you must ensure that all outstanding fees and taxes have been paid. This includes any annual return fees or taxes owed to the South African Revenue Service (SARS)
File the necessary documents: In order to close a dormant company, you will need to file certain documents with the CIPC. These include a ‘Notice of Intention to De-register a Company’ form and a ‘Notice of Resolution to De-register a Company’ form.

There is no escape from sars penalties for dormant companies according to the tax Administration Act 28 of 2011 which stipulates that SARS can issue administrative penalties for outstanding tax returns.

The process might seem like a simple one however, there are grounds for de-registration: A company or close corporation may be referred for de-registration:

upon application by any party subject to the requirements for a request for de-registration,
if annual returns are outstanding for more than 2 successive years, or
if the Commission believes that the company or close corporation has been inactive for 7 years.

Once the CIPC has approved your request to close the company you must publish a notice in the Government Gazette announcing the company’s de-registration as well as notify creditors and shareholders, should the company have any. This can be done through a notice in the Government Gazette or by sending a letter to each creditor or shareholder individually.

In South Africa, a company is considered dormant if it has not conducted any business activity or generated any income for a certain period of time. Even if a company is dormant, it still has to comply with certain legal and tax requirements, such as submitting annual tax returns and financial statements to the relevant authorities. However, there is a misconception that an entity is automatically precluded from taking steps to formalize its dormancy once it ceases to trade for whatever reason. The Companies Act 71 of 2008 stipulates how a company can formalize its dormancy. An entity can formalize its dormancy by way of a liquidation process, when there are still assets and creditors, or deregistration with the Companies and Intellectual Property Commission, when there are no assets or outstanding creditors. These assets are used to unlock finances to pay creditors, including the SARS. Once the dormancy has been formalized, Sars must be notified. The company must deregister for all the tax types for which it was registered, such as income tax, value-added tax, Pay-As-You-Earn, and customs and excise.

No escape on sars penalties for dormant companies

It is important for companies, even those that are dormant, to comply with tax laws to avoid penalties and potential legal action. If a company is unable to comply with its tax obligations due to financial difficulties or other reasons, it may be possible to negotiate with SARS for leniency or to make arrangements to pay off the outstanding taxes over time. If this is not executed, the penalty for late submission of annual tax returns is calculated as a percentage of the tax due, and the amount of the penalty increases for every month that the return is late . In addition, there may be penalties for non-compliance with other tax obligations, such as failing to register for certain taxes or not submitting monthly returns. If SARS is charging penalties on companies that are dormant, it may be because the companies are not meeting their tax obligations. For example, if a dormant company fails to submit its annual returns, SARS may impose penalties for non-compliance.

The leniency that SARS imposes is that, if you have had a dormant company, that hasn’t traded for a few years and is behind on submitting tax returns, SARS will implement a penalty based on the most recent tax return received. For example, a quick calculation shows that a company that has been dormant for 35 months (as per the penalty) and has not submitted income tax and VAT returns will have incurred minimum administration penalties of R18000 for income tax and R120 000 for VAT respectively.

The penalties that may be imposed by SARS on dormant companies that fail to comply with their tax obligations are as follows:

Late submission of tax returns: A dormant company may be penalized for failing to submit their tax returns on time. The penalty for the late submission of tax returns is a percentage of the tax due, and it increases the longer the delay.
Late payment of taxes: If a dormant company fails to pay their taxes on time, SARS may impose a penalty that is a percentage of the tax amount owed. The penalty for late payment of taxes also increases the longer the delay.
Failure to register for tax: If a dormant company is required to register for tax but fails to do so, they may be penalized by SARS. The penalty for failing to register for tax can be a fixed amount or a percentage of the tax due.
Failure to maintain proper records: SARS requires that all companies maintain proper records of their financial transactions. If a dormant company fails to maintain proper records, they may be penalized by SARS.

It's important to note that the specific penalties imposed on dormant companies by SARS can vary depending on the circumstances of the non-compliance. It's always best for a dormant company to seek professional advice to ensure that they comply with all tax obligations and avoid any penalties. If you ignore notifications from SARS, it will keep levying the administrative penalties and the company will have a non-compliance tax status. This not only affects the dormant company but also its directors and shareholder in their personal capacities.

What greylisting entails and what it means for south africas economy

tmmbsonline — Thu, 02 Mar 2023 14:43:48 +0000

What greylisting entails and what it means for south africa’s economy

What greylisting entails and what it means for south africas economy

Financial crime is a serious concern for many countries around the world as it threatens the safety and soundness of financial systems world-wide. In the effort to combat money laundering, terrorism financing and other financial crimes, international organizations such as the Financial Action Task Force (FATF) and the European Union (EU) have established a set of standards that countries are expected to meet. Failure to meet these standards can result in a country being greylisted, which has significant implications for the economy. For a country to be declared greylisted, it is placed under valuation by the Financial Action Task Force (FATF).

Essentially, what greylisting means is that a country has been recognized as having compliance issues but has committed to address strategic inadequacies to counter money laundering and terrorist financing within a given timeframe. When a country has been put onto the grey list, the country is monitored by the FATF and strict regulations are imposed on them. When a country is greylisted, it means that its government has adopted an action plan or strategy to address its deficiencies identified during its mutual evaluation after an observation period, and to implement such an action plan within a defined time period, and with FATF monitoring such implementation. The implications of being placed onto the grey list is an indication that a country faces serious potential problems such as a subsequent shrinking economy, a downgrade of ratings, and a lack of trade opportunities.

What greylisting entails and what it means for south africas economy

What is greylisting ?

The Financial Action Task Force (FATF) is an inter-governmental body that supervises money laundering and terrorist financing around the globe. It also finances the proliferation of weapons of mass destruction. The purpose of the FATF is to prevent these illegal activities and the harm they cause to society from transpiring. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. A country may be greylisted for a variety of reasons:

Lack of Adequate Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Measures. Countries are expected to have effective AML/CTF measures in place to prevent money laundering, terrorism financing and other financial crimes. If a country is found to have insufficient measures, it may be greylisted.
Insufficient Cooperation with other countries. Countries are expected to cooperate with each other in combatting financial crimes. If a country is found to be uncooperative, it may be greylisted.
Presence of high-risk industries. Countries with high-risk industries for financial crimes, such as casinos, may be more likely to the greylisted.
Lack of political will. In some cases, a country may lack the political will to enact and enforce the necessary AML/CTF measures.

In 2021, the FATF conducted a mutual valuation which was concluded in October 2021. The valuation found holes in South Africa’s strategic systems to combat money laundering and terrorist financing. This was due to low levels of transparency and inadequate internal capabilities and systems, which led South Africa to be placed under review by the FATF and on the brink of being greylisted. South Africa found itself on a verge of being greylisted largely due to the collapse of commercial crime investigation and prosecution during the State capture period. South Africa is facing the consequences for its failure to implement effective prosecutions for crimes like money laundering and terrorist financing. Sadly, on February 24 2023, South Africa together with Nigeria were officially declared greylisted. The decisions were announced by the FATF. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed time frames. The average time spent under greylisting is 3 years, but the range is very wide, from a minimum of 1 year to a maximum of 7 years.

What greylisting entails and what it means for south africas economy

Furthermore, the length of time a country remains on the FATF grey list depends on the speed in which it resolves the shortcomings identified in its AML/CFT framework. South Africa has committed to resolve the remaining eight strategic actions by January 2025 on the condition that regular updates be provided, which creates an opportunity on set intervals to have South Africa’s greylisting reviewed by the FATF. However, the government hopes to address them sooner, possibly in 2024.

The initial mutual evaluation report had 67 recommended actions which South Africa had to action. In February 2023, at the time the greylisting decision was made, the FATF acknowledged the significant and positive progress made, and concluded that 15 actions remain open, linked to eight strategic actions.

The threat of greylisting was first announced in 2021, and as result, President Cyril Ramaphosa’s government has worked hard to address the concerns raised by the FATF in its mutual evaluation report, and has submitted an action plan to this end, while also participating in regular follow-up evaluations to assess progress. Some of the key actions coordinated by various stakeholders since 2021 include:

Passing several pieces of legislation aimed at improving the country’s financial crime laws, including the General Laws (Anti-Money Laundering and Counter Terrorist Financing) Amendment Bill in December 2022.
The mandate of the Financial Intelligence Centre Act (FICA) has already been widened to include more effective monitoring and detection capabilities.
The establishment of the Fusion Centre, which brings together bodies like the NPA, SIU, SARS, the Hawks, Crime Intelligence, State Security Agency and the FIC. Since its inception the work of the Fusion Centre has led to the preservation and recovery of approximately R1.75 billion in criminal assets.
In the Mid-Term Budget Policy Statement, Treasury made R14bn available to capacitate agencies that are critical in the fight against crime, including those that fight financial crimes.

The biggest concern is the impact that greylisting has on consumers, businesses and the country as a whole.

Being greylisted can have significant implications for the economy of a country. Some key implications include the following:

Damage to Reputaion. Being greylisted can also damage the reputation of a country. This is the main implication on a greylisted country. It makes it difficult for the country to attract tourists and foreign investors, and can also impact the country’s ability to negotiate favorable trade agreements. Furthermore, a country’s ineffectiveness in combatting financial crimes like corruption and money-laundering as well as terror financing is deemed to be below international standards.
Reduced Foreign Investment. Being greylisted may also lead to loss of confidence by foreign investors. This can result in a reduction of foreign investment in a country, which can have a negative impact on economic growth.
Increased Cost of Capital. If a country is greylisted, it may find that the cost of borrowing money increases. This can make it more expensive for the government and business to borrow money, which can make it more difficult for them to finance their operations.

With regards to the impact that greylisting has on the economy, President Cyril Ramaphosa stipulated that the strategic deficiencies identified by the FATF are not directly related to the financial sector which means that financial stability and costs of doing business with South Africa will not be seriously impacted by the greylisting. The President’s word gives South Africans some assurance however, the greylisting came at an unfortunate time because it represents bad news heaped onto the worsening energy crisis and other critical failings in areas such as transport and water which are essential to a functioning economy.

When looking at greylisting from a business and consumers point of view, transactions made by companies and individuals from South Africa will be seen as high-risk transactions, prompting difficult administrative and compliance obligations, and may reduce international trade with South Africa. South Africa’s biggest traders such as the UK will immediately impose a high risk category on the country, which will have a negative impact on investment flows. Investment flows are important, because it is through foreign direct investments that the country is able grow its economy and combat high levels of unemployment.

The money that South Africa has or is been using to pay for the risk premium imposed by the global Development Finance Institutions (DFIs), could have been used to address South Africa’s developmental needs such as health-care, education, infrastructure and job creation. However, it is not the end of the world for South Africa seeing that it’s on the grey list. The positive side of being greylisted is that, although the greylisting increases government’s foreign-funding costs and weigh on trade flows, it’s unlikely to “significantly” affect South Africa’s creditworthiness. It also grants the government a “wake-up” call in the need to increase its international cooperation on the law enforcement side and the use of financial intelligence. So all that useful information that financial institutions are providing by way of suspicious transaction reports and activity- that all needs to be made much better use of by law enforcement. If South Africa continues to make significant improvements in effectiveness and swiftly exits the grey list, it will have a limited impact on financial stability and costs of doing business with South Africa, particularly if South Africa moves speedily to get out of greylisting.