1. BACKGROUND
  • During the course of the G20 High-Level Principles on Beneficial Ownership Transparency held in 2015, the South African Government made a commitment towards improved beneficial ownership regulation. This was followed up with a further commitment made by the Open Government Partnership during 2016, with both commitments entailing a transparent, central and public beneficial ownership register approved by the Cabinet of South Africa.
  • In addition to the above, South Africa made a commitment to the Financial Action Task Force (“FATF”) and underwent an evaluation on its anti-money laundering and counter-terrorist financing measures. The FATF found that enforcement agencies and accountable institutions had not met the desired standards with regard to beneficial ownership.
  1. THE GENERAL LAWS (ANTI-MONEY LAUNDERING AND COMBATING TERRORISM FINANCING) AMENDMENT ACT NO. 22 OF 2022 (“AMENDMENT ACT”)
  • In response to the shortcomings and deficiencies identified by the FATF’s report, the South African Government enacted the Amendment Act to then amend the following Acts:
    • The Companies Act (No. 71 of 2008);
    • The Trust Property Control Act (No. 57 of 1988);
    • The Non-profit Organisations Act (No. 71 of 1997);
    • The Financial Intelligence Centre Act (No. 38 of 2001); and
    • The Financial Sector Regulation Act (No. 9 of 2017).
  • The amendments that were made to the Trust Property Control Act and the Companies Act now form the basis for the transparency to the beneficial ownership of trusts and companies alike.
  • The amendments listed above commenced on 1 April 2023.
  1. AMENDMENTS TO THE TRUST PROPERTY CONTROL ACT, 1988
  • There were two major amendments made to the Trust Property Control Act, the first being the definition of “accountable institution” given the same definition as found in Section 1(1) of the Financial Intelligence Centre Act, 2001.
  • The second amendment includes broadening the definition of “beneficial owner”, to include:
  • The natural person who either directly or indirectly owns the trust property or who exercises control over the administration of the trust arrangements;
  • The founder of the trust and, in the event of the founder being a legal or person or partnership, then the person acting on behalf of the legal person or partnership;
  • Every trustee of the trust and, in the event of the trustee being a legal person or partnership, then such person acting on behalf of the legal person or the partnership; and
  • Every beneficiary that is referred to by name in either the trust instrument or the founding statement and, in the event of such beneficiary being a legal person or partnership, then such person acting on behalf of the legal person or partnership.
  1. AMENDMENTS TO THE COMPANIES ACT, 2008
  • Once again there were two major changes made to the Companies Act, with the first being the inclusion of a definition for “affected company”, to include a regulated company as set out in Section 117(1)(i) of the Companies Act and also a private company that is controlled by or a subsidiary of a regulated company as a result of circumstances contemplated in Section 2(2)(a) or 3(1)(a).
  • The second change made to the Companies Act is the inclusion of a definition for “beneficial owner” in respect of a company, to be an individual who is either directly or indirectly the ultimate owner of the company or is the person exercising control of the company through the following methods:
    • Being the holder of the beneficial interests of the company;
    • exercising control of the voting rights of the company;
    • exercising control of the right to appoint or remove members of the board of directors;
    • the ability to exercise control of the company through a chain of ownership;
    • and the ability to materially influence the management of the company.
  1. WHAT IS REQUIRED OF TRUSTS GOING FORWARD?
  • Trustees must establish and record the information prescribed by the Trust Property Control Act relating to beneficial ownership of the specific trust and ensure the information is kept up to date. Parallel hereto the Master of the High Court (“Master”) must maintain a register containing information relating to beneficial ownership of trusts and providing for access to information regarding beneficial ownership.
  • To give practical effect to these new requirements, the Master’s website now provides for the upload of an electronic register which contains the details of the beneficial owners of the particular trust. The link to this register can be found at: https://icmsweb.justice.gov.za/mastersinformation/.
  • The trustees (or a person who is authorized by the trustees by way of a written Power of Attorney) need to capture this information on the portal and submit it for each trust on which they are trustees. Trustees are also required to keep certified copies of the identity documents of all the “beneficial owners”.
  • Both the Master and the trustees must make the information available to any person as prescribed in the relevant legislation.
  • Failure to comply with the above obligations is an offence and, on conviction thereof, trustees may be liable to a fine not exceeding R10-million, imprisonment for a period of five years, or both.
  • It is therefore extremely important for trustees to take note of these amended regulations and ensure that their own personal records are kept up to date and that the relevant register is filed with the Master.
  1. WHAT IS REQUIRED OF COMPANIES GOING FORWARD?
  • A company will be required to submit copies of both its securities register and its register of disclosure of beneficial interests when filing its annual returns with the Companies and Intellectual Property Commission (“CIPC”).
  • The annual return of a company must be made available to any person as prescribed, upon the request thereof by such prescribed person.
  • A company that falls within the ambit of being an “affected company” must establish and maintain a register of all persons who hold a beneficial interest in the company which is equal to or exceeds five percent of the total number of issued securities of the company.
  • A company that does not fall within the ambit of being an “affected company” must record and maintain updated prescribed information, within its securities register, of the natural persons who are the beneficial owners of the company.
  • The CIPC is then tasked with maintaining a register with the updated information where required, to ensure that the ultimate beneficial owners of corporate vehicles are known.
  1. GREYLISTING OF SOUTH AFRICA AND THE EFFECTS THEREOF ON TRUSTS
  • Although the FATF did recognize that tangible progress had been made by South Africa in addressing its beneficial ownership shortcomings, it was not quite enough to pull South Africa over the finish line. On 24 February 2023 South Africa was thus officially greylisted by the FATF.
  • One prominent effect of the abovementioned greylisting is that stricter timelines have been imposed by the South African Revenue Services (“SARS”), including the requirements of trustees to make a determination by way of a signed resolution before the end of February as to the amount of the trust’s taxable income which is vested in beneficiaries. SARS has recognized that this may be problematic, as the trust’s financials will not have been completed by that time.
  • SARS recently issued a draft notice that requires trustees to submit an IT3(t) form which then provides SARS with details of any amount vested in a beneficiary which includes income (net of expenditure), capital gains and capital amounts distributed by the end of September, so that a beneficiary’s tax returns can be pre-populated. The first proposed submission date hereof is 30 September 2023.
  • Furthermore, SARS proposed that as of 2024 an IT3(d) form be issued by pre-determined charitable institutions in respect of donations received, for it to then also be pre-populated on the tax return.
  1. CONCLUSION

From the above it is clear that both trustees and directors will have to be more active and diligent when involved with the administration of trusts and companies alike, in an attempt to comply with the more onerous obligations brought about by the Amendment Act and imposed by both SARS and the CIPC.  For any assistance with the above, please contact one of our professionals.

 

Louis Stroebel                                                 Marjuan Bredenhann

LLB; LLM (Import/Export Law)                       BCom; LLB

Director                                                            Candidate Attorney

Corporate and Commercial Law             E-mail: ca1pta@sstlaw.co.za 

E-mail: Lstroebel@sstlaw.co.za              Phone: 012 361 9823

Phone: 012 361 9823