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South Africa Publishes Regulations For Tax-Free Savings

by Lorys Charalambous,, Cyprus

18 November 2014

South Africa's National Treasury has published the draft Notice and Regulations required to allow the introduction of tax-free savings accounts from March 1, 2015.

The draft Notice lists the service providers that may offer tax-free savings and investments to the public and administer those accounts on their behalf, while the draft Regulations detail the products that will qualify as "tax-free investments" to be included in tax-free savings accounts.

The stated objective of introducing the tax-free saving accounts is "to encourage individuals to save, which would reduce their financial vulnerability and reliance on debt when there are unexpected shocks to their normal income or sudden large expenditures."

When approved, the Taxation Laws Amendment Bill 2014 (TLAB) will include a new section that will define a "tax-free investment" as a savings product, financial instrument, or insurance policy that must comply with the Regulations.

In turn, the draft Regulations state that products that qualify as tax-free savings and investments should be "simple to understand, transparent in their disclosure, and suitable for the majority of individuals making use of such savings and investment products."

For example, products may not restrict when returns are paid or the level of returns paid to the individual. Products with performance fees will also not qualify as tax-free investments.

In a similar obligation to that imposed on collective investment schemes, products that expose an investor to an "excessive" level of market risk are excluded. Products must enable individuals to access their savings and investment within seven business days upon request.

The new TLAB section also states that all returns from such products will be tax-free in the hands of the individual who owns them. An individual may contribute up to ZAR30,000 (USD2,700) per year in tax-free savings and investments, with a lifetime contribution limit of ZAR500,000.

Licensed banks, long-term insurance companies, managers of registered collective investment schemes, authorized users, linked investment service providers, and the Government will be able to offer tax-free savings accounts.

Written comments may be submitted on the draft Notice and Regulations by the close of business on December 3, 2014.

TAGS: individuals | South Africa | tax | investment | business | banking | financial services | insurance | investment funds | fees | tax breaks | individual income tax | services | Africa | Regulations | Tax

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