SARS Voluntary Disclosure Programme: what South Africans need to know before SARS comes knocking

No one likes discovering they’ve made a tax mistake, especially when it involves several years of missed declarations or unpaid tax. But whether it was an honest oversight, a misunderstanding of your tax obligations, or a complex cross-border financial arrangement, ignoring the problem won’t make it disappear.

The good news is that the SARS Voluntary Disclosure Programme (VDP) gives taxpayers an opportunity to come forward before the South African Revenue Service (SARS) discovers the issue itself. In many cases, this can significantly reduce the penalties associated with tax defaults and help taxpayers get back on the right side of compliance.

SARS recently released an updated guide to the Voluntary Disclosure Programme, offering greater clarity on how the programme works. While the expanded guidance answers many long-standing questions, it also leaves one important issue unresolved: whether taxpayers can obtain relief from accumulated interest on unpaid tax.

Top three takeaways on the SARS VDP for South African expats

1. If you’ve got historic tax issues, the SARS Voluntary Disclosure Programme (VDP) could give you the chance to put things right before SARS takes action.
2. SARS has cleared up some important questions around who qualifies for the VDP and how audits, verifications and older tax years are treated.
3. One big question remains unanswered: whether taxpayers can get relief on the interest that has built up on unpaid tax.

Read more: SARS VDP lifeline for non-compliant expats, tax experts say grab it while you can.

What is the SARS Voluntary Disclosure Programme?

The SARS Voluntary Disclosure Programme was introduced to encourage taxpayers to voluntarily correct their tax affairs before SARS uncovers any non-compliance. Rather than waiting for an audit or investigation, taxpayers can proactively disclose tax defaults and work with SARS to resolve outstanding issues. Depending on the circumstances, successful applicants may receive relief from certain penalties and criminal prosecution related to the disclosed defaults.

The SARS VDP programme is designed to promote voluntary tax compliance while making it easier for SARS to collect outstanding taxes without lengthy enforcement processes.

Read more: What happens if South African expats fall behind on their tax returns?

What’s changed in the updated VDP guide from SARS?

The latest SARS guide does more than explain how to submit an application. Instead, it provides detailed guidance on how SARS interprets the law and how it assesses applications. Some of the areas that now receive much greater attention include:

• What constitutes a tax default
• What makes a disclosure voluntary
• Incomplete or inaccurate disclosures
• Qualification requirements
• Understatement penalties
• Audits versus verifications
• Prescription and historic tax periods

This expanded guidance helps taxpayers better understand whether they qualify for the programme before they begin the application process.

A verification isn’t always an audit

One of the more helpful clarifications concerns the difference between a SARS verification and a formal audit. Many taxpayers assume that any contact from SARS automatically disqualifies them from using the SARS Voluntary Disclosure Programme. The updated guide makes it clear that this isn’t necessarily true.

A verification does not automatically amount to an audit under the Tax Administration Act. However, taxpayers shouldn’t become complacent. If you only decide to disclose a tax default after becoming aware of it through a verification or inspection, SARS may decide that your disclosure is no longer truly voluntary.

In other words, timing matters.

If you’re aware of a tax issue, it’s generally far better to address it proactively than to wait until SARS starts asking questions.

Don’t assume older tax years are off limits

Another important area addressed in the updated guidance relates to prescribed tax periods. Many taxpayers mistakenly believe that once enough time has passed, SARS can no longer revisit historic tax matters. Unfortunately, that’s not always the case.

SARS explains that where there has been non-disclosure, misrepresentation or material omissions, it may still be able to reopen older tax periods under certain provisions of the Tax Administration Act.

This is particularly relevant for taxpayers with:

• Undeclared foreign income
• Offshore investments
• Overseas bank accounts
• Trust structures
• Cryptocurrency holdings
• Other complex cross-border financial arrangements

As SARS continues to improve its access to third-party information and international financial data, historic tax defaults are becoming increasingly difficult to hide.

Read more: No place to hide – why your overseas accounts are no secret to SARS.

The biggest unanswered question: interest relief

While the updated guide provides more clarity in many areas, one important issue remains noticeably absent. SARS says very little about whether taxpayers can obtain remission of interest when making a voluntary disclosure.

For many taxpayers, accumulated interest over several years can represent a significant portion of their total tax liability. Even where the outstanding tax itself is manageable, the interest can substantially increase the overall cost of becoming compliant.

Following recent legal developments and announcements in the National Budget Review, many tax practitioners expected SARS to explain:

• Whether taxpayers can request interest remission alongside a VDP application
• How these requests should be submitted
• Whether separate applications would be required
• How future legislative changes may work in practice

Unfortunately, the updated guide offers no answers. Until further legislative changes or additional SARS guidance become available, taxpayers remain uncertain about how interest relief will be handled.

Why acting sooner rather than later matters

This enhanced guidance from the revenue authority should also be viewed alongside its increasingly sophisticated enforcement capabilities. Today, SARS has access to far more information than ever before through enhanced data analytics, financial institution reporting, international information-sharing agreements and improved cryptocurrency tracing.

This means taxpayers with historic tax compliance issues are far more likely to be identified than they were just a few years ago. Waiting in the hope that SARS won’t discover past non-compliance is becoming an increasingly risky strategy.

Read more: Left South Africa without telling SARS? Here’s what expats need to know.

Should South Africans living abroad consider using the VDP?

Absolutely. Many South Africans living overseas incorrectly assume that foreign income, offshore investments or overseas bank accounts fall outside SARS’ reach. In reality, international information-sharing agreements have significantly increased SARS’ visibility into taxpayers’ global financial affairs.

If you’re a South African living abroad and you’re unsure whether you’ve correctly declared your worldwide income, foreign assets or offshore investments, seeking professional advice early can help you understand your obligations and determine whether the SARS Voluntary Disclosure Programme is appropriate for your circumstances.

Every case is different, particularly where South African tax residency, tax emigration or cross-border financial structures are involved.

Read more: SARS Tax Diagnostic: creating a clear path for expats and emigrants.

FinGlobal: tax compliance specialists for South Africans

While it’s true that nobody enjoys discovering they’ve made a mistake with their taxes, it’s also true that putting it off rarely makes things easier. The sooner you understand where you stand, the more options you’re likely to have for resolving the issue before SARS steps in. Whether you need help with bringing your South African tax affairs up to date, or ceasing your South African tax residency, or handling your retirement annuity withdrawal, FinGlobal’s cross-border tax specialists are here to walk you through the process, from start to finish.

Leave your contact details below, and let FinGlobal help you put your tax worries behind you.