Automatic Exchange of Information – Layman Version

• • Here is a redrafted explanation of the Automatic Exchange of Information (AEOI) system, this aims to clarify the authoritative legal position regarding financial information exchange for South Africans, whether working abroad or living in South Africa.
  • Understanding Automatic Exchange of Information (AEOI): What South Africans Need to Know
  • This information comes directly from the South African Revenue Service (SARS) guidelines on Automatic Exchange of Information [New Source: Excerpts from “Automatic Exchange of Information: Reporting and Compliance Guidelines”].

What is AEOI and Why Does it Exist?

• • Automatic Exchange of Information (AEOI) is a global system where tax authorities from different countries share financial information with each other. The main goal is to make sure everyone pays the correct amount of tax and to prevent people from hiding money or avoiding taxes across borders. It helps tax authorities verify that you’ve accurately reported your income or assets held in other countries.
  • Essentially, it means that information about your financial accounts held in one country can be automatically sent to the tax authorities in the country where you are a tax resident.
  • The Two Main Types of AEOI
  • There are two primary international standards for this automatic exchange:

FATCA (Foreign Account Tax Compliance Act):

• • This is a United States law introduced in 2010 to improve tax compliance by U.S. citizens who have financial accounts outside the U.S..
  • How it works: Foreign financial institutions (like South African banks) must identify accounts held by “Specified U.S. persons” (e.g., U.S. citizens or certain U.S.-connected entities) and report this information to their local tax authority (SARS in South Africa). SARS then shares this information with the U.S. Internal Revenue Service (IRS).
  • South Africa has had an agreement with the U.S. (called an Intergovernmental Agreement or IGA) for FATCA reporting since July 1, 2014, and SARS has been sharing this data with the IRS since 2015.

CRS (Common Reporting Standard):

• • This is a broader international standard developed by the Organisation for Economic Co-operation and Development (OECD) in 2014, in collaboration with G20 countries.
  • How it works: Financial institutions in countries that have adopted CRS (called “participating jurisdictions,” which includes South Africa) must identify accounts held by customers who are tax residents in other foreign jurisdictions (not the U.S., as that’s covered by FATCA). They report this information to their local tax authority, which then automatically exchanges it with the tax authority of the account holder’s country of tax residence.
  • More than 100 countries are involved in exchanging information under CRS.

Who is Affected and What Might Happen to You?

• • AEOI affects individuals and businesses who hold financial accounts.

If you have an existing account (in South Africa or abroad):

• • Your financial institution (e.g., your bank) may contact you to confirm your country or countries of tax residence.
  • They might do this especially if their records suggest you could be a foreign tax resident, for example, if you’ve provided an address outside South Africa.
  • This is to determine if any of your accounts need to be reported under FATCA or CRS.

If you open a new account (from March 1, 2016):

• • Your financial institution is legally required to ask you to certify your tax residence.
  • If you are a tax resident of a foreign country, you will need to provide your Taxpayer Identification Number (TIN) or an equivalent number used by that country’s tax authority. If you don’t have one, you might be asked to explain why.

Accounts held by entities (like companies, trusts, partnerships):

• • If you open a new account for an entity (from March 1, 2016), the financial institution will ask for information about the entity’s tax residence and its type of business.
  • In some cases, they will also need information about the individuals who control or own the entity, including their tax residency and TIN if they are tax residents outside South Africa.
  • They may also request this information for existing entity accounts to meet their FATCA and CRS obligations.

What Information is Reported About You?

• • If your account is identified as a “reportable account” (meaning it’s held by a tax resident of a foreign country or a specified U.S. person), financial institutions must report specific details. This helps tax authorities confirm your foreign-source income or assets.
  • The reported information generally includes:
    • Details about the Financial Institution that holds your account (its name and tax reference number).
    • Your Account Details:
      • Your account number (or equivalent).
      • The balance or value of your account at the end of the reporting period (typically February 28th of each year for South Africa).
      • If the account was closed during the year, the balance just before it closed and the fact that it was closed. (Even if your account balance is zero or negative, it will be reported as zero).
    • Income Generated by Your Account (depending on the account type):
      • Savings/Cheque Accounts (Depository Accounts): The total gross interest paid or credited to your account.
      • Investment Accounts (Custodial Accounts): The total gross interest, dividends, and other income from assets in the account, as well as the gross proceeds from selling or redeeming financial assets or property.
      • Other Accounts: The total gross amount paid or credited to you related to the account, including any redemption payments.
    • Your Personal Information:
      • Your Full Name.
      • Your Address.
      • If you are an individual, your Date of Birth.
      • If you are an individual, your Place of Birth (town/city, or country if town/city isn’t available).
      • Your Jurisdiction(s) of Residence (the country/countries where you are a tax resident).
      • Your Taxpayer Identification Number(s) (TINs) issued by your jurisdiction(s) of residence.
    • When is This Information Reported?
    • AEOI submissions (for both FATCA and CRS) are generally due annually by May 31st of each year. Failure to meet these deadlines can result in penalties.
    • In Summary for South Africans Abroad or with Foreign Connections:
      • If you are a South African working abroad and therefore a tax resident in another country, your South African financial institutions will identify your accounts and report relevant details to SARS. SARS will then share this information with your country of tax residence via CRS.
      • If you are a South African living in South Africa but have financial accounts in other countries, those foreign financial institutions will report your account details to their local tax authorities. These authorities will then send your information to SARS, as South Africa is your country of tax residence, under the CRS standard.
      • If you are a S. citizen or have specific U.S. connections and hold accounts in South Africa, your South African financial institutions will report relevant details to SARS, which will then share this with the U.S. IRS under FATCA.
    • The overall aim is to ensure global tax compliance and prevent cross-border tax evasion