Understanding beneficial ownership reporting is crucial for South African businesses as regulatory bodies enforce stricter reporting to enhance financial transparency. These measures help combat illicit activities like money laundering and tax evasion.
Both the South African Revenue Service (SARS) and the Companies and Intellectual Property Commission (CIPC) require businesses to disclose beneficial ownership information. But, their objectives, reporting criteria, and compliance obligations differ.
This article explores these differences and what they mean for businesses.
What is Beneficial Ownership?
Beneficial ownership refers to the individuals who ultimately own or control a legal entity, even if their names do not appear on official company records. These individuals may exert influence over an organisation through voting rights, ownership shares, or other means of control.
SARS Beneficial Ownership Requirements
SARS mandates beneficial ownership disclosures primarily to ensure tax compliance and prevent tax evasion. As part of its reporting framework, SARS requires businesses to submit beneficial ownership information in the following ways:
- Income Tax and Trust Disclosures: Companies, trusts, and certain taxpayers must declare beneficial ownership details in their tax returns, particularly if these structures are used to distribute income or hold assets.
- Third-Party Reporting: Financial institutions and other entities involved in high-value transactions must report beneficial ownership information to SARS, helping the agency detect tax avoidance strategies.
- Alignment with FATCA and CRS: SARS collects beneficial ownership data in accordance with international tax reporting standards, such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). This ensures cross-border transparency and information-sharing with international tax authorities.
Failure to comply with SARS’ beneficial ownership disclosure requirements may result in penalties, audits, and increased scrutiny of financial transactions.
CIPC Beneficial Ownership Requirements
CIPC, as the regulator of company registrations in South Africa, requires beneficial ownership reporting to improve corporate governance and compliance with anti-money laundering (AML) regulations. The key aspects of CIPC’s requirements include:
- Mandatory Beneficial Ownership Register: Companies, particularly those classified as affected companies (e.g., private companies with multiple shareholders), must maintain a register of beneficial owners and submit this information to CIPC.
- Reporting Obligations for Legal Entities: All companies and close corporations are required to disclose details of individuals who own 5% or more of the entity’s shares or voting rights.
- Annual Returns: Companies must update their beneficial ownership information in their annual return submissions to CIPC. This ensures that corporate ownership structures remain transparent and up to date.
- Compliance with FIC Act: CIPC’s beneficial ownership framework aligns with the Financial Intelligence Centre Act (FIC Act), which requires businesses to implement measures to prevent financial crimes such as money laundering and terrorist financing.
Failure to comply with CIPC’s beneficial ownership reporting obligations can result in administrative penalties, deregistration of a company, or legal action under AML regulations.
Key Differences Between SARS and CIPC Beneficial Ownership Reporting Requirements
While both SARS and CIPC collect beneficial ownership information, their focus and application differ significantly. It is important for all affected parties to understand beneficial ownership reporting and the differences.
Features |
SARS |
CIPC |
| Primary Objective | Tax compliance and revenue collection | Corporate governance and anti-money laundering enforcement |
| Who Must Report? | Taxpayers, trusts, financial institutions | Companies, closed corporations, and affected entities |
| Threshold for Disclosure | Broad, based on tax obligations | 5% or more ownership or voting rights |
| Filing Frequency | As required by tax returns and third-party reporting | Annual returns and updates upon ownership changes |
| Penalties for Non-Compliance | Audits, penalties, legal action | Fines, deregistration, and legal consequences |
Understanding Why Compliance Matters for Beneficial Ownership Reporting
Non-compliance with beneficial ownership reporting requirements can have severe consequences, including legal penalties, reputational damage, and operational disruptions. Businesses must ensure they maintain accurate and up-to-date records to meet both SARS and CIPC obligations.
How Konsise Can Help
Managing and understanding beneficial ownership reporting across multiple regulatory frameworks can be complex. Konsise provides businesses with an efficient entity management platform to streamline compliance, ensuring accurate data collection, secure storage, and timely reporting. Our automated solutions help organisations navigate regulatory complexities while minimising risk.
For more information on how Konsise can assist with your compliance needs, book a no obligation demonstration with a member of our team today.
Definitions:
“Affected” company: any regulated company including the following:
- All Public companies, including public companies listed on a stock exchange.
- State owned companies.
- Any private company regulated by the Takeover Regulations and which experienced a transfer of more than 10% of its securities as a result of an amalgamation or merger during the previous 24 months.
- Any subsidiary of an affected company.
“Non-affected” company: any company that is not classified as an “affected” company.
“Beneficial interest”: the right or entitlement of a person, through ownership, agreement, relationship or otherwise, alone or together with another person to—
- receive or participate in any distribution in respect of the company’s securities;
- exercise or cause to be exercised, in the ordinary course, any or all of the rights attaching to the company’s securities; or
- dispose or direct the disposition of the company’s securities, or any part of a distribution in respect of the securities.
‘‘Beneficial owner”: an individual who, directly or indirectly, ultimately owns the company or exercises effective control of the company, including through:
- the holding of beneficial interests in the securities of the company;
- the exercise of, or control of the exercise of the voting rights associated with securities of the company;
- the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of the company;
- the holding of beneficial interests in the securities, or the ability to exercise control, including through a chain of ownership or control, of a holding company of the company;
- the ability to exercise control, including through a chain of ownership or control, of—
• a juristic person other than a holding company of the company;
• a body of persons corporate or unincorporate;
• a person acting on behalf of a partnership;
• a person acting in pursuance of the provisions of a trust agreement; or
• the ability to otherwise materially influence the management of the company.
