South Africa FATCA & CRS Compliance: What You Need To Know

South Africa FATCA & CRS Compliance Update

South Africa was an early adopter of the international standards for the Automatic Exchange of Information (AEOI) agreement which includes both the FATCA and CRS regulations. South Africa’s tax authority the South African Revenue Service (SARS)  joined the globally coordinated approach to combat international tax evasion and increase global tax transparency. 

To be compliant with the AEOI agreement and the FATCA and CRS regulations South African financial institutions (FIs) need to make FATCA and CRS reporting submissions to SARS on an annual basis. From 1 April to 31 May 2022, South African financial institutions will be required to submit all the relevant information and data files on reportable accounts for the past tax year, 1 March 2021 to 28 February 2022.

South African Financial Institutions should also keep the recent FATCA and CRS updates in mind:

• Clarification document for AEOI (FATCA) Reporting TIN Codes, outlining and clarifying the codes Tax Identification Number (TIN) data fields for FATCA submissions

• The 2020 CRS update, replacing the previous 2016 CRS regulations with definitional rule changes that became effective  1 June 2021

• The Mandatory Disclosure Rules, effective 1 March 2023, that outline an intermediary’s obligation to disclose any CRS Avoidance Arrangements or Opaque Offshore Structures to SARS 

For more information on who must report, what information must be reported, how this information must be reported, and when this information must be reported we advise you to refer to the FATCA and CRS Guidance on the SARS website.

Is FATCA applicable to South Africa?

South Africa’s exchange and reporting of financial account information under the FATCA regulation is governed by an International Agreement (IGA), which South Africa signed in 2014.  This IGA stipulated that Reporting Financial Institutions (RFIs), located in South Africa, will have to perform tax due diligence by identifying and reporting all relevant account information on all accounts held by U.S. residents or U.S. citizens living in South Africa to SARS. SARS is then obligated to exchange this information with the Internal Revenue Service (IRS) beginning in 2015.

Is South Africa a CRS Reportable Jurisdiction?

South Africa’s exchange and reporting of financial account information with other countries (referred to as participating jurisdictions) are governed under the CRS regulation.

South Africa is one of more than 100 jurisdictions that have committed to CRS since it was developed by the Organisation for Economic Co-operation and Development (OECD) in 2014. 

CRS similar to FATCA requires RFIs residents in a participating jurisdiction, in this case, South Africa, to identify and report any tax residents or reportable accounts on an annual basis to the local tax authority, SARS. SARS is then required to exchange this information with the participating jurisdictions beginning in 2017. 

In addition, RFIs in CRS adopter countries will need to ensure that they stay up to date with the list of participating jurisdictions, as they’re obligated to report their account holders from all of these participating countries. 

South Africa has also entered into bilateral CRS agreements with Hong Kong, Singapore, and Qatar and has a number of Bilateral Country-by-Country ("CbC") Competent Authority Agreements to exchange CbC reports.

RFIs should also be aware that the South African government made updates to the CRS requirements in 2020 which came into effect in June 2021 and effectively replaced the 2016 CRS regulations. In addition, the new Mandatory Disclosure Rules which become effective in March 2023, will make it mandatory for intermediaries to disclose information about CRS avoidance arrangements and opaque offshore structures.

Penalties for Non-Compliance With FATCA and CRS

South African RFIs with FATCA and CRS obligations include banks, custodians, brokers, asset management, private equity funds, and certain investment vehicles. These institutions must be compliant with FATCA and CRS regulations or risk being excluded from lucrative markets and may be liable to pay both local and international penalties. An institution is considered to be non-compliant if they;

• Fail to maintain appropriate documentation on financial accounts

• Fail to report information or submit FATCA and CRS filings by the deadlines

• Report inaccurate information on reportable accounts 

SARS can penalise non-compliant institutions up to R 16 000 per month per non-compliance issue and may also impose sanctions for non-compliance. These institutions also risk being removed from the IRS-compliant list which may result in additional IRS penalties and the IRS withholding of 30% tax on all US-sourced payments received. 

In addition to the financial penalties, non-compliant RFIs may be at risk of serious reputational damage as in some cases tax authorities have been known to publish cases of non-compliance with FATCA and CRS regulations, leading to naming and shaming in the industry and media.

How Can TAINA Help?

South African institutions can start making their FATCA and CRS submissions to SARS from 1 April 2022. During the busy reporting season, tax operations departments should take this opportunity to review how effective our current validation systems are and look to address any potential gaps in the collection and validation of self-certification forms for both the onboarding of new accounts and ongoing monitoring of changes on existing accounts.

TAINA’s fully-automated FATCA and CRS Validation Platform can help South African financial institutions lighten their compliance burden whilst improving efficiency, reducing cost, mitigating risk, and improving their overall customer experience.

TAINA’s flexible and lightweight platform has helped financial institutions of all types not only resolve their documentation issues and addressed gaps in their current process but also ensure that they have more accurate, complete, and clean year-end data for FATCA and CRS reporting to tax authorities.

We would love to talk to you more about your current documentation validation process and how our award-winning FATCA and CRS Validation platform may add value to your organisation.

For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action