South Africa has signed an intergovernmental agreement with US to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA).
It is a reciprocal agreement, which ensures that financial institutions in South Africa will report information about US account holders to the South African Revenue Service (SARS).
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The US enacted the Foreign Account Tax Compliance Act (FATCA) in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by US citizens in other countries.
FATCA calls for foreign financial institutions to provide the U.S. Internal Revenue Service (IRS) with information about US account holders annually.
Failing that, a 30% withholding tax will be imposed on the foreign financial institution with regard to certain U.S. source payments, such as interest.
However, the withholding tax is waived if foreign financial institutions enter into disclosure compliance agreements with the US Treasury.
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