Guide to CRS reporting work – Layman Version

Here’s a breakdown of how the CRS works in South Africa, explained in simple terms for a layperson, especially South Africans abroad or living in South Africa:

• • Understanding the Common Reporting Standard (CRS) in South Africa
  • The CRS in South Africa essentially involves five key steps that financial institutions must follow:

Identifying Reporting Financial Institutions (RFIs):

• • What is an RFI? In simple terms, an RFI is a financial institution in South Africa (like a bank, savings institution, broker, investment fund, or certain insurance companies) that is required to check your accounts and report specific information to the South African Revenue Service (SARS). This includes legal entities (like companies) or legal arrangements (like trusts or partnerships), even though a trust isn’t usually considered an entity under South African common law, it is for these purposes.
  • Who is Excluded? Certain financial institutions and accounts are specifically excluded from CRS reporting, generally those considered low-risk for tax evasion. Examples include government entities, broad or narrow participation retirement funds, qualified credit card issuers, and some collective investment vehicles. Accounts like retirement/pension accounts, tax-favoured accounts (like Tax Free Savings Accounts), and certain annuity contracts are also typically excluded.

Reviewing Financial Accounts:

• • What is a Financial Account? This is any account held at an RFI. It covers various types, including savings accounts (depository accounts), investment accounts where assets are held for you (custodial accounts), interests in investment entities, and certain cash value insurance or annuity contracts.
  • What are “Financial Assets”? These are the types of holdings that can make an account reportable, such as shares, bonds, commodities, certain swap agreements, insurance or annuity contracts, and interests in any of these. However, direct ownership of real estate (non-debt interest) is not included as a financial asset.

Identifying Reportable Accounts:

• • What makes an account “Reportable”? An account becomes “reportable” if the account holder is a tax resident of a foreign jurisdiction – meaning, they pay taxes in a country outside of South Africa that is a CRS participating country.
  • What if the account holder is an Entity? For entities (like companies or trusts), it gets a bit more complex. An RFI must determine if the entity is a Passive Non-Financial Entity (PNFE). A PNFE is essentially an entity that primarily earns income from investments and is not actively trading or providing services. If an entity is a PNFE, the RFI must “look through” the entity to identify the natural person(s) who ultimately control it (Controlling Persons). If any of these controlling persons are tax residents of a foreign jurisdiction, then the entity’s account is reportable.
  • Who are “Controlling Persons”? For a company, it’s typically someone with 25% or more ownership, or the senior managing official if no owner meets that threshold. For a trust, it includes the settlor (creator), trustee(s), protector(s), beneficiaries, and anyone else with ultimate effective control. This aligns with international anti-money laundering (AML) standards.
  • Due Diligence Procedures: How RFIs Check Your Accounts RFIs must follow specific procedures to identify reportable accounts. These procedures differ depending on whether the account is for an individual or an entity, and whether it’s an “old” (pre-existing) or “new” account.

For Individuals:

• • • Pre-existing Accounts (Open before March 1, 2016):
      • Lower Value Accounts (under $1 million): The RFI can check your recorded residential address. If that doesn’t work, they’ll search their electronic records for signs of foreign tax residency (like a foreign address, foreign phone number, or instructions to transfer funds to a foreign account). If such “foreign indicia” are found, the account becomes reportable unless the RFI “cures” it by getting a self-certification (a declaration from you about your tax residency) and supporting evidence.
      • High Value Accounts (over $1 million): RFIs conduct a more thorough check. This involves an electronic record search, a paper record search of documents from the last 5 years (like account opening forms or AML/KYC documents), and a relationship manager inquiry (if you have one, your relationship manager must check if they know you are a foreign tax resident). Similar to lower value accounts, foreign indicia can make the account reportable unless cured with a self-certification and evidence.
    • New Accounts (Opened on or after March 1, 2016):
      • Self-Certification is Mandatory: When opening a new account, you must provide a self-certification. This is a signed or positively affirmed declaration stating your name, residential address, date of birth, tax residency jurisdiction(s), and Taxpayer Identification Number (TIN).
      • Verification: The RFI will compare your self-certification against other information they have (like your FICA/AML/KYC documents) to ensure it’s reasonable. If there’s a conflict or it seems unreliable, they’ll ask for a new one or an explanation.
      • Timelines and Consequences: Generally, the self-certification must be obtained upon account opening and validated within 90 days.
      • If you refuse to provide a valid self-certification without a good reason, the RFI may not allow you to transact on the account, and you could face administrative penalties from SARS.

For Entities:

• • Pre-existing Entity Accounts (Over $250,000 threshold for review): The RFI will review existing information (including AML/KYC) to see if the entity is a foreign resident. If it is, or if it’s a Passive NFE, the RFI will identify the controlling persons and check their tax residency. For accounts under $1 million, the RFI can rely on AML/KYC information to identify controlling persons and their reportable status. For accounts over $1 million, a self-certification is required from the entity or its controlling persons.
  • New Entity Accounts (No minimum threshold for review): All new entity accounts must be reviewed. The RFI will typically obtain a self-certification from the entity itself. If the entity is a Passive NFE, the RFI must also identify the controlling persons and obtain a self-certification from them to determine if they are reportable persons.

Obtaining and Verifying Taxpayer Identification Numbers (TINs):

• • What is a TIN? In South Africa, this would be your income tax reference number. For foreign jurisdictions, it’s their equivalent.
  • Requirement: For new individual accounts, if your self-certification says you are a tax resident of a reportable jurisdiction, you must provide your TIN for that jurisdiction, unless the jurisdiction doesn’t issue TINs or doesn’t require their collection. RFIs are generally not required to verify the accuracy of the TIN itself.
  • Exceptions: If you claim not to have a TIN, this statement should be part of your self-certification. In exceptional cases, you might be given up to 90 days to provide a missing TIN, but if you cannot or refuse to provide it after this period, the account may not proceed.

Important Considerations for You

• • Self-Certification is Key: For new accounts, and in many cases for existing accounts, providing an accurate self-certification about your tax residency is a critical obligation.
  • Know Your Tax Residency: Your tax residency is not necessarily where you live but where you are considered a tax resident by a country’s laws. You can be a tax resident in more than one country.
  • Changes in Circumstances: If your situation changes (e.g., you move, get a new address, or change your tax residency), you should notify your RFI, as this could impact your account’s reportable status and require them to re-evaluate it.
  • AML/KYC Procedures: The CRS due diligence procedures are closely linked to the Anti-Money Laundering (AML) and Know Your Client (KYC) procedures that RFIs already follow under South African law (specifically the Financial Intelligence Centre Act, FICA). RFIs often rely on this existing information for CRS purposes.
  • This framework ensures that South Africa complies with its international commitments to share financial information to prevent tax evasion, aligning with global standards set by the OECD.
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  • Here is a comprehensive breakdown of the Common Reporting Standard (CRS) in South Africa, presented in an easy-to-understand bullet-point format, specifically tailored for South Africans and designed to be bot-friendly, drawing directly from the provided sources:

Understanding the Common Reporting Standard (CRS) in South Africa: Your Guide to Financial Reporting Obligations

• • The Common Reporting Standard (CRS) is an international agreement to share financial account information to combat tax evasion. South Africa has implemented CRS obligations on its financial institutions under the Tax Administration Act, 2011 (TAA). The way CRS works in South Africa involves five main steps:

STEP 1: Determine Reporting Financial Institutions (RFIs)

• • What is a Reporting Financial Institution (RFI)?
    • An RFI is a financial institution in South Africa that must follow specific rules to find and report certain financial accounts.
    • This includes any Financial Entity (like a company, trust, or partnership) that acts as a bank (Depository Institution), a custodian for assets (Custodial Institution), an investment manager (Investment Entity), or certain insurance companies (Specified Insurance Company).
    • Even if a trust isn’t usually seen as a legal entity in South African law, it is treated as one for these reporting purposes.
  • Types of Financial Institutions:
    • Depository Institutions: These are like banks, savings and loan institutions, or credit unions that accept deposits.
    • Custodial Institutions: These are entities like custodian banks or brokers that hold financial assets for others and get at least 20% of their gross income from this activity.
    • Investment Entities: These are funds or portfolio managers that primarily (50% or more) earn gross income from investment activities on behalf of customers, or from investing in financial assets while being managed by another financial institution.
    • Specified Insurance Companies: These are life insurance companies that make payments on specific types of insurance or annuity contracts.

What is an Entity?

• • • An Entity refers to a legal entity (like a company) or a legal arrangement (like a trust or partnership).

What is a Participating Jurisdiction?

• • • A Participating Jurisdiction is a country where CRS is law and that has agreements with other CRS countries to automatically exchange information. South Africa has a list of these countries.

Non-Reporting Financial Institutions (Excluded RFIs):

• • • Certain financial institutions are excluded because they are considered low-risk for tax evasion.
    • Examples of Excluded RFIs include:
      • Government Entities, International Organisations, Central Banks (with some exceptions).
      • Broad or Narrow Participation Retirement Funds.
      • Pension Funds related to government entities or central banks.
      • Qualified Credit Card Issuers.
      • Exempt collective investment vehicles.
      • Trustee documented trusts.
      • Various South African pension and retirement funds (e.g., Pension Fund, Provident Fund, Retirement Annuity Fund, Living Annuity, Compulsory Annuity). These exclusions are subject to additional requirements.
    • Nil Return: If an RFI has no reportable accounts during a reporting period, they must still file a “nil return”.

STEP 2: Review Financial Accounts

Which Accounts Must Be Reviewed?

• • A “Financial Account” is any account maintained by an RFI.
  • This term includes five categories:
    • Depository Accounts (like savings accounts).
    • Custodial Accounts (where assets are held for you).
    • Equity and Debt Interests.
    • Cash Value Insurance Contracts.
    • Annuity Contracts.

Which Financial Assets are Included?

• • Financial accounts that might be reportable hold “Financial Assets” such as:
    • • Securities (e.g., shares, bonds).
      • Partnership interests.
      • Swaps (e.g., interest rate swaps).
      • Insurance Contracts.
      • Annuity Contracts.
      • Any interest (like futures or options) in the above.
      • Important Exclusion: A direct, non-debt interest in real estate is NOT considered a Financial Asset.

Excluded Accounts:

• • Some accounts are specifically excluded from CRS due diligence and reporting because they are considered low-risk for tax evasion.
  • South Africa’s specific excluded accounts include:
    • Retirement and pension accounts.
    • Other tax-favoured accounts (like a Tax Free Savings Account).
    • Term Life Insurance Contracts.
    • Estate Accounts.
    • Escrow Accounts.
    • Depository Accounts for unreturned overpayments.
    • Central Securities Accounts.
    • Mzanzi Accounts.
    • NPO (Non-Profit Organisation) Accounts.
    • These exclusions are subject to additional requirements.

STEP 3: Identify Reportable Accounts

What is a Reportable Account?

• • • An account is “Reportable” if the account holder is a tax resident of a foreign jurisdiction that participates in CRS.

Passive Non-Financial Entity (PNFE):

• • • A PNFE is an entity that is not an Active NFE. Active NFEs are generally entities that primarily engage in active business (e.g., manufacturing, trade) and are not subject to review or reporting for their accounts.

Controlling Persons of a PNFE:

• • • If an account holder is an Entity (like a company or trust), the RFI must determine if it is a PNFE.
    • If it’s a PNFE, the RFI must “look through” the entity to identify the natural person(s) who ultimately control it.
    • For companies: A controlling person is generally someone with 25% or more ownership. If no one meets this, it’s the senior managing official.
    • For trusts: Controlling persons include the settlor(s), trustee(s), protector(s), beneficiary(ies), and any other natural person(s) exercising effective control over the trust. This aligns with international anti-money laundering (AML) standards (FATF recommendations and the Financial Intelligence Centre Act, 2001, as amended – “the new FICA”).

STEP 4: RFIs MUST Apply Due Diligence Rules to Identify Reportable Accounts

General Obligations:

• • • RFIs must follow specific procedures to determine if any of the financial accounts they maintain are Reportable Accounts.
    • A key goal is to determine if the account holder is a tax resident in any foreign jurisdiction.
    • RFIs can rely on information they already have, including information gathered for AML/KYC (Anti-Money Laundering/Know Your Client) procedures.
    • Due Diligence Differences: Procedures vary based on whether an account is:
      • Pre-existing (open before 29 February 2016 for CRS).
      • New (opened on or after 1 March 2016 for CRS).
      • Individual or Entity
      • Account Value: Thresholds apply for individual accounts (Lower vs. High Value) and pre-existing entity accounts (USD 250,000).
    • Reviewing Individual Accounts (Step 4.4)

Pre-existing Individual Accounts (Open before 1 March 2016)

• • • Lower Value Accounts (≤ $1 million as of 29 Feb 2016):
    • Residence Address Test: RFI checks your recorded residential address. If it’s in South Africa and verified, no further action is needed. A “care of” or PO Box address isn’t generally accepted as a residential address unless specific circumstances apply.
    • Electronic Records Search: If the residence address test isn’t conclusive, the RFI searches its electronic data for “foreign indicia”.
    • Foreign Indicia include:
      • Being identified as a foreign resident or US citizen.
      • A current mailing or residence address in a foreign country.
      • One or more current telephone numbers in a foreign country, with no South African number.
      • (For non-depository accounts only) Standing instructions to transfer funds to a foreign account.
      • A power of attorney or signatory authority granted to someone with a foreign address.
      • An “in-care-of” or “hold mail” address in a foreign country with no other address on file.
      • Curing Foreign Indicia: If foreign indicia are found, the account becomes reportable unless the RFI “cures” it by obtaining both a self-certification AND documentary evidence (e.g., government-issued document, utility bill, company certificate showing South African residency) confirming non-reportable status.
      • Monitoring: Lower value accounts are monitored annually. If the balance exceeds $1 million, it becomes a High Value Account, triggering more thorough review procedures in the next year.
      • High Value Accounts (> $1 million on last day of Feb 2017/subsequent years):
      • Enhanced Review: RFIs conduct a more thorough review.
      • Electronic Record Search: Same indicia as for lower value accounts.
      • Paper Record Search: If electronic records are insufficient, the RFI reviews physical documents from the last 5 years, such as account opening forms, AML/KYC documents, powers of attorney, or standing instructions (but not for depository accounts for CRS).
      • Relationship Manager Inquiry: If you have a relationship manager, they must be asked if they know you are a foreign tax resident.
      • Curing Indicia: Similar to lower value accounts, certain foreign indicia can be “cured” by obtaining a self-certification and documentary evidence.

New Individual Accounts (Opened on or after 1 March 2016)

• • • Mandatory Self-Certification: When opening a new account, you must provide a valid self-certification.
    • This declaration must be signed/affirmed and include your:
      • Name
      • Residence address
      • Date of birth
      • Jurisdiction(s) of residence for tax purposes
      • Taxpayer Identification Number (TIN) (in SA, your income tax reference number).
    • Verification: The RFI will check your self-certification against other information they have (e.g., FICA/AML/KYC documents) to ensure it’s reasonable. If there’s a conflict, they’ll ask for clarification or a new self-certification.
    • Timing: Self-certification must be obtained upon account opening and validated within 90 days. In exceptional circumstances, this period may be extended, possibly requiring SARS approval.
    • Consequences of Non-Compliance: If you refuse to provide a valid self-certification without a good reason, the RFI may not allow you to transact on the account. Furthermore, this can lead to administrative penalties imposed by SARS under Public Notice 193 and the Tax Administration Act.
    • Reviewing Entity Accounts (Step 4.5)
      • Pre-existing Entity Accounts (Accounts > US $250,000 on 1 March 2016 or subsequent review dates)
        • RFIs must review information (including AML/KYC) to determine if the entity is a foreign resident and/or a Passive NFE (requiring a “look through” to controlling persons).

Account Holder is a Reportable Person:

• • • Foreign residency is indicated by a place of incorporation or address in a foreign jurisdiction.
    • This status can be “cured” by obtaining a self-certification to the contrary or by the RFI reasonably determining (based on public info) that the entity is not reportable (e.g., a listed public company).
    • Account Holder is an RFI: Generally, not a reportable account, unless it’s a “Type B Investment Entity” resident in a non-CRS participating jurisdiction, in which case it’s treated as a Passive NFE.

Passive NFE Controlling Persons:

• • • RFI determines if the entity is a Passive NFE (usually via self-certification, or existing info).
    • RFI identifies controlling persons (can rely on AML/KYC for this).
    • If the account balance is under $1 million, the RFI can rely on AML/KYC to determine if controlling persons are reportable.
    • If the account balance exceeds $1 million, the RFI must seek a self-certification from the entity or controlling person(s) to establish if any controlling persons are reportable. If not received after reasonable efforts, an electronic record search for indicia is performed.

New Entity Accounts (No minimum threshold for due diligence)

• • • All new entity accounts must be reviewed.

Account Holder is a Reportable Person:

• • • RFI generally must obtain a self-certification during account opening.
    • The self-certification’s reasonableness must be confirmed.
    • A self-certification is not required if the RFI can reasonably determine, based on other information, that the account holder is clearly not a reportable person.
    • Account Holder is an RFI: Same rules as for pre-existing entity accounts.

Passive NFE Controlling Persons:

• • • RFI determines if the entity is a Passive NFE (self-certification or existing info).
    • RFI identifies controlling persons (relying on AML/KYC consistent with FATF/FICA, always treating settlors and beneficiaries of a trust as controlling persons).
    • RFI must seek a self-certification from the entity or controlling person(s) to establish if any controlling persons are reportable.

STEP 5: Obtaining and Verifying Taxpayer Identification Numbers (TINs)

• • • When a TIN is NOT Required: A TIN is not required if:
      • The relevant foreign jurisdiction does not issue TINs.
      • The foreign jurisdiction uses TINs, but the specific person has not been issued one for a valid reason.
      • The domestic law of the foreign jurisdiction does not require collection of the TIN.
      • Accuracy Verification: RFIs are not required to verify the accuracy of the TIN
      • Pre-existing Accounts: RFIs must make reasonable efforts to obtain TINs for pre-existing accounts.
      • New Individual Accounts: If your self-certification indicates you are a tax resident of a reportable jurisdiction, your self-certification must include your TIN for that jurisdiction, unless an exception applies.
      • If you claim not to have a TIN, this statement should be part of your self-certification.
      • In exceptional cases (e.g., needing time to locate it), you might get up to 90 days to provide a missing TIN.
      • If you refuse to provide the TIN after this period, the account may not proceed.
    • What is a Change in Circumstances?
      • A change in circumstances is any new or additional information that affects the reporting status of an account, including adding or changing an account holder.
      • RFIs are expected to have procedures to identify such changes.
      • If a change makes a self-certification or other documentation unreliable, the RFI must re-determine the account’s status by broadly following the original due diligence process.
      • You are encouraged to notify your RFI of any changes affecting your self-certification’s validity.