SARS Issues Tax Notices to Crypto Traders, Signaling Crackdown on Tax Avoidance

The South Africa Revenue Service (SARS) is now issuing tax notices to crypto traders. According to officers at local law firm, Webber Wentzel, these notices are based on information obtained from various crypto asset exchanges, signalling a significant escalation in SARS’ efforts to enforce tax compliance within the burgeoning crypto sector.

SARS begins issuing tax notices to crypto traders in South Africa

South Africa's revenue authority, the South Africa Revenue Service (SARS), has reportedly begun issuing tax notices to crypto traders in the country.

According to officials at local law firm Webber Wentzel, these notices are based on information obtained from various crypto asset exchanges, signaling a significant escalation in SARS’ efforts to enforce tax compliance within the burgeoning crypto sector. Failure to provide the requested information could be deemed a criminal offense under the Tax Administration Act, the officials said.

SARS has adopted a “leave no stone unturned” policy in its pursuit of revenue collection by any means necessary, including taxable profits from crypto trading. The South Africa Financial Sector Conduct Authority (FSCA) has approved at least 138 license applications to cryptocurrency asset service providers in the country, and these entities are now required to provide certain information to regulators.

Furthermore, South Africa's Financial Intelligence Centre (FIC) has issued a preliminary directive mandating cryptocurrency platforms in South Africa to share the identities of customers involved in cryptocurrency transactions.

Crypto asset service providers (CASPs) would be obligated to share a significant amount of personal data of cryptocurrency senders with recipient providers. This data includes:

The officials also waded into the legality of trading digital assets, especially from the perspective of the South Africa Revenue Bank (SARB), which shares jurisdiction with the FCSA on the subject.

The officials said that SARB has clarified its stance on digital asset trading, effectively refusing to allow the trading of digital assets.

“Neither the Currency and Exchanges Manual for Authorised Dealers nor the Currency and Exchanges Manual for Authorised Dealers in foreign exchange with limited authority caters for cross-border or foreign exchange transfers for the explicit purpose of purchasing crypto assets. From an exchange control perspective, the Financial Surveillance Department is unable to approve any transactions of this nature,” SARB said, according to Webber Wentzel.

However, there remains a legal pathway for the trade of digital assets, the officials argued.

“SARB does allow individuals to use their single discretionary allowance (an allowance of up to an overall limit of R1 million per calendar year) or foreign capital allowance to acquire crypto assets,” the officials said.

“This provides a legal pathway for South Africans to invest in cryptocurrencies within the boundaries of existing financial regulations. However, the Foreign Direct Investment dispensation does not permit investments in crypto assets. While this provides some clarity for natural persons, the position of juristic entities remains challenging.”

Given this regulatory environment, the lawyers advised that the era of flying under the radar is swiftly coming to an end, and traders must adapt to these regulatory changes to safeguard their financial interests.

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