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Complying with Changes in Legislation 2012 October / November 2012 Delegates Workbook Facilitated by Itukisa (Pty) Ltd. The views expressed in this workbook are not necessarily reflective of the official views of Fasset.

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Complying with

Changes in Legislation

2012

October / November 2012

Delegates Workbook

Facilitated by Itukisa (Pty) Ltd.

The views expressed in this workbook are not necessarily reflective of the official views of Fasset.

Complying with Changes in Legislation

Page 2

COMPLYING WITH CHANGES IN LEGISLATION

CONTENTS

THE FINANCIAL INTELLIGENCE CENTRE ACT 38 OF 2001 AND THE FINANCIAL INTELLIGENCE

CENTRE AMENDMENT ACT, 2008 ................................................................................................ 8

Purpose of the Act ................................................................................................................................ 8

Definition of a money laundering activity .............................................................................................. 8

Money Laundering legislation in South Africa ....................................................................................... 8

The Financial Intelligence Centre (“FIC”) .............................................................................................. 8

Money Laundering Control measures ................................................................................................... 9

Registration of accountable and reporting institutions ........................................................................ 13

Directives ............................................................................................................................................ 14

Responsibility for supervision of accountable institutions ................................................................... 14

Appointment of inspectors .................................................................................................................. 15

Inspections .......................................................................................................................................... 15

Administrative sanctions ..................................................................................................................... 16

Appeal ................................................................................................................................................. 18

Compliance and enforcement ............................................................................................................. 19

Schedules to the Act ........................................................................................................................... 20

Inspections by IRBA ........................................................................................................................... 21

FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT ................................................ 23

Purpose of the Act .............................................................................................................................. 23

Definition of advice ............................................................................................................................. 23

Intermediary services .......................................................................................................................... 24

Authorisation of financial services providers ....................................................................................... 24

Complying with Changes in Legislation

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Application for authorisation................................................................................................................ 25

Lapsing of licence ............................................................................................................................... 25

Qualifications of representatives and duties of authorised financial services providers ...................... 26

Debarment process of representatives ............................................................................................... 26

Compliance officers and compliance arrangements ........................................................................... 26

Accounting and audit requirements .................................................................................................... 27

Change in financial year- end ............................................................................................................. 27

Exemption of FSP‟s from audited financial statement requirements ................................................... 28

Reporting duty of auditors and compliance officers ............................................................................ 28

Determination of Fit and Proper requirements .................................................................................... 30

Professional indemnity and fidelity insurance cover ........................................................................... 33

Financial interest and conflict of interest management policy ............................................................. 34

Offences and penalties ....................................................................................................................... 35

THE NATIONAL CREDIT ACT NO.34 OF 2005 ............................................................................ 36

Purpose of the Act .............................................................................................................................. 36

Overview of the Act ............................................................................................................................. 36

Chapter 1 – Interpretation, Purpose and Application .......................................................................... 36

Chapter 2 – Consumer Credit Institutions ........................................................................................... 40

Chapter 3 – Consumer Credit Industry Regulation ............................................................................. 40

Chapter 4 – Consumer Credit Policy .................................................................................................. 41

Chapter 5 – Consumer Credit Agreements ......................................................................................... 44

Chapter 6 – Collection, Repayment, Surrender and Debt Enforcement ............................................. 49

Compliance and Reporting – Chapter 8 of the Regulations ................................................................ 51

Debt counselling ................................................................................................................................. 52

CONSUMER PROTECTION ACT .................................................................................................. 53

Complying with Changes in Legislation

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Purpose of the Act .............................................................................................................................. 53

Application of the Act .......................................................................................................................... 53

Exemptions ......................................................................................................................................... 55

Fundamental consumer rights ............................................................................................................ 55

Protection of consumer rights and the consumer voice ...................................................................... 65

Safety Recall Guidelines ..................................................................................................................... 65

Business names and industry codes of conduct ................................................................................. 66

PROTECTION OF PERSONAL INFORMATION BILL .................................................................. 67

Purpose of the Act .............................................................................................................................. 67

Application of the Act .......................................................................................................................... 67

What information is protected? ........................................................................................................... 67

Exclusions ........................................................................................................................................... 68

Conditions for lawful processing of personal information .................................................................... 68

Processing of special personal information ........................................................................................ 70

Information Protection Regulator ........................................................................................................ 70

Information Protection Officer ............................................................................................................. 71

Notification of processing .................................................................................................................... 71

Rights of data subjects regarding unsolicited electronic communications and automated decision making 71

Enforcement ....................................................................................................................................... 71

Offences and penalties ....................................................................................................................... 72

Implementation timeline ...................................................................................................................... 72

THE COMPANIES ACT, 71 OF 2008 ............................................................................................. 73

Categories of companies (Section 8) .................................................................................................. 73

Financial statements (Section 29) ....................................................................................................... 73

Annual financial statements (Section 30) ............................................................................................ 74

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Financial year of company (Section 27) .............................................................................................. 82

Access to financial statements / related information (Section 31) ....................................................... 82

Annual return (Section 33) .................................................................................................................. 83

Form and standards for company records (Section 24) ...................................................................... 84

Location of company records (Section 25) ......................................................................................... 85

Access to company records (Section 26) ........................................................................................... 86

Accounting records (Section 28) ......................................................................................................... 87

Appointment of auditor (Section 90) ................................................................................................... 89

Resignation of auditors & vacancies (Section 91) .............................................................................. 89

Rotation of auditors (Section 92) ........................................................................................................ 90

Rights and restricted functions of auditors (Section 93) ...................................................................... 90

Board committees (Section 72) ........................................................................................................... 91

Audit committees (Section 94) ............................................................................................................ 92

Board, directors and prescribed officers (Section 66) ......................................................................... 94

Election of directors (Section 68) ........................................................................................................ 95

Directors conduct (Section 76) ............................................................................................................ 98

Liability of directors and prescribed officers (Section 77).................................................................. 101

Financial assistance for subscription of securities (Section 44) ........................................................ 102

Loans or other financial assistance to directors (Section 45) ............................................................ 103

Distributions (Section 46) .................................................................................................................. 104

Shareholder resolutions (Section 65) ................................................................................................ 105

SECOND-HAND GOODS ACT, 6 OF 2009 ................................................................................. 106

Arrangements of sections ................................................................................................................. 106

Purpose of the Act ............................................................................................................................ 106

Chapter 1- Definitions ....................................................................................................................... 106

Complying with Changes in Legislation

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Chapter 2- Registration ..................................................................................................................... 109

Chapter 3- Accreditation .................................................................................................................. 111

Chapter 4- Dealers ........................................................................................................................... 112

Chapter 5- Motor vehicles ................................................................................................................. 113

Chapter 6- Controlled metals ............................................................................................................ 114

Chapter 7- Communication equipment ............................................................................................. 114

Chapter 8- Powers of police officials ................................................................................................. 115

Schedule 3- Offences and penalties ................................................................................................. 117

TAX ADMINISTRATION ACT ...................................................................................................... 118

General ............................................................................................................................................. 118

Powers and duties of SARS and SARS officials ............................................................................... 119

Registration ....................................................................................................................................... 120

Returns and records ......................................................................................................................... 121

Information gathering ........................................................................................................................ 122

Inspections ........................................................................................................................................ 123

Inquiries ............................................................................................................................................ 125

Search and seizure ........................................................................................................................... 126

Confidentiality of information............................................................................................................. 129

Assessments .................................................................................................................................... 132

Tax liability and payment .................................................................................................................. 134

Taxpayer account and allocation of payments .................................................................................. 137

Deferral of payment .......................................................................................................................... 138

Recovery of tax ................................................................................................................................. 138

Interest .............................................................................................................................................. 141

Refunds ............................................................................................................................................ 142

Complying with Changes in Legislation

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Write-off or compromise of tax debts ................................................................................................ 143

Administrative non-compliance penalties .......................................................................................... 146

Percentage based penalty ................................................................................................................ 147

Procedures for imposing penalty ...................................................................................................... 147

Understatement penalty .................................................................................................................... 149

Voluntary disclosure programme ...................................................................................................... 151

Criminal offences .............................................................................................................................. 153

Registration of tax practitioners and reporting of unprofessional conduct ........................................ 155

Complying with Changes in Legislation

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THE FINANCIAL INTELLIGENCE CENTRE ACT 38 OF 2001

AND THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT

ACT, 2008

PURPOSE OF THE ACT

The objective of the Financial Intelligence Centre Act (FICA), 38 of 2001 is to establish a Financial

Intelligence Centre and a Money Laundering Advisory Council in order to combat money laundering

activities. The legislation aims to combat money laundering activities by getting “accountable institutions”

to report suspect and unusual transactions that may be indicative of possible money laundering

opportunities to the money laundering office.

FICA aims to impose certain duties on institutions and other persons who might be used for money

laundering purposes.

DEFINITION OF A MONEY LAUNDERING ACTIVITY

A money laundering activity means any activity which has, or is likely to have, the effect of concealing or

disguising the nature, source, location, disposition or movement of the proceeds of unlawful activities. By

definition any interest which anyone has in such proceeds as listed above is also guilty of money

laundering and includes any activity which constitutes an offence in terms of section 64 of this Act or

section 4, 5 or 6 of the Prevention of Organised Crime Act 1998 known as POCA.

MONEY LAUNDERING LEGISLATION IN SOUTH AFRICA

The Prevention of Organised Crime Act (POCA) came into being in 1998.

This Act defines offences relating to proceeds of unlawful activities that are punishable. This includes

money laundering, assisting another to benefit from the proceeds of unlawful activities and acquisition as

well as possession or use of proceeds of unlawful activities.

As a result of international pressure, this legislation was clearly not enough to conform to world standards

in combating money laundering. The Financial Intelligence Centre Act 2001 (FICA) was passed and

needs to be read in conjunction with POCA.

THE FINANCIAL INTELLIGENCE CENTRE (“FIC”)

The Financial Intelligence Centre was established as an institution outside the public service but within the public

administration as envisaged in section 195 of the Constitution. The principal objective of the Centre is to assist in

the identification of the proceeds of unlawful activities and the combating of money laundering activities.

The other objectives of the Centre are:

To make information collected by it, available to investigating authorities, supervisory bodies, the

intelligence services and the South African Revenue Service to facilitate the administration and

enforcement of the laws of the Republic;

Complying with Changes in Legislation

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To exchange information with bodies with similar objectives in other countries regarding money

laundering activities, the financing of terrorist and related activities, and other similar activities;

To supervise and enforce compliance with this Act or any directive made in terms of this Act and to

facilitate effective supervision and enforcement by supervisory bodies.

MONEY LAUNDERING CONTROL MEASURES

The principal money laundering control measures as contained in the Act are:

Duty to identify clients (section 21);

Duty to keep records of transactions and business relationships (section 22);

Reporting cash transactions above a prescribed limit (section 28);

Reporting duties and access to information (section 29 and others);

Formulation and implementation of internal rules (section 42);

Training and compliance (section 43).

Duty to identify clients

An accountable institution is obligated to establish the identity of any prospective client before any business

relationship is established with the client. This must be done even if only one transaction will be concluded with

the client. This will include establishing the identity of a person on whose behalf the client may be acting. If any

transactions have taken place before the FICA took effect, the institution must trace all accounts at the institution

that were involved in such a transaction.

Accountable institutions will have one year to identify all their existing clients that they have a business

relationship with. If an accountable institution refuses to do the above, it is guilty of an offence and liable for the

prescribed penalties.

A business relationship will be deemed to have been established if an arrangement exists with a view of

concluding transactions on a regular basis.

In addition to establishing and verifying the identity of existing clients, accountable institutions will also be

required to trace all accounts that they have that are involved in transactions concluded in the course of the

business relationship with that client.

Duty to keep records

This duty placed on accountable institutions must be performed as soon as a business relationship exists or a

transaction has been concluded with a client. The details that should be included in the records are:

Identity of the client;

Where a client is acting on behalf of another person:

○ Identity of such a party; and

○ The client‟s authority to act on behalf of another person.

Complying with Changes in Legislation

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The manner in which the identities were established;

The nature of the business relationship or transaction;

Where a transaction has taken place:

○ The amount involved; and

○ The parties involved in the transaction;

○ All accounts that were involved in such a transaction or relationship;

○ The name of the person that verified the identities of the parties;

○ A copy of any document that was used to establish the identity of the parties.

It is allowable to keep the above information in electronic form. The above mentioned information must be kept

for a period of five years after the termination of a particular business relationship or for the same period after a

single transaction. The keeping of records may be done by a third party on behalf of the accountable institution

as long as the FIC is furnished with the details of the said third party. When any records mentioned above are

presented in a matter before a court, the records shall be deemed admissible as evidence of any fact that would

normally have been admissible had it been stated orally. A certified printout or extract would also be acceptable.

If any of the records are tampered with, or not kept in the prescribed detail, the accountable institution is guilty of

an offence.

Reporting cash transactions above a prescribed limit

An accountable institution must, as soon as possible but no later than 2 days, report to the FIC the prescribed

particulars concerning a transaction concluded with a client, if in terms of the transaction an amount of cash in

excess of R25 000, or an aggregate of smaller amounts, when combined, come to this amount:

Is paid by the accountable institution or reporting institution to the client, or to a person acting on

behalf of the client, or to a person on whose behalf the client is acting; or

Is received by the accountable institution or reporting institution from the client, or from a person

acting on behalf of the client, or from a person on whose behalf the client is acting.

The aggregation period is not specified in the Act but the FIC requests that a period of at least 24 hours be

applied when considering aggregation.

Indications of when a series of smaller amounts combine to form a “composite” transaction that exceed the

prescribed threshold are the following:

The period within which such a series of smaller transactions take place;

The fact that the series of transactions consist of a repetition of the same type of transaction e.g. cash

payments or cash deposits;

The smaller amount transactions involve the same person or account holder, or relates to the same

account.

In terms of regulation 22(1) of the Regulations a CTR must be filed with the Centre electronically by making use

of the internet-based reporting portal provided for this purpose at http://www.fic.gov.za.

Complying with Changes in Legislation

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An accountable institution may only file CTRs by other means in exceptional circumstances where the reporter

does not have the technical capability to report electronically to the Centre. In such cases a CTR may be sent by

to the Centre by facsimile.

A CTR may not be posted to the Centre.

Reporting duties

Suspicious and unusual transactions:

This provision includes any person that carries on a business, manages one, is employed by such a business or

knows or suspects an unusual transaction. Unlawful or suspicious transactions would include:

A business that has received or is about to receive proceeds derived from unlawful activities;

Any transaction to which the business is a party that:

○ Facilitates the transfer of proceeds received as a result of unlawful activities;

○ Has no apparent business or lawful purpose;

○ Is conducted in order to avoid having to comply with the reporting duty as laid down by this Act;

○ May be relevant to the investigation of the evasion of any type of tax levied by SARS.

Using the business for any purpose relating to money laundering;

Any person to whom the above applies, must inform the FIC within the prescribed period after such knowledge

was acquired or such a suspicion arose. A person that is obligated to inform the FIC is not permitted to disclose

the content or the existence of such a report to any person, including the person to whom the report pertains

unless:

It is within the scope of powers conferred to that person by means of legislation;

The disclosure is for the purpose of complying with the Act;

The purpose of the disclosure is for legal proceedings;

The person has been granted permission through a court order.

There is a special defence available to someone that has been charged with the failure of reporting a suspicious

or unusual transaction. Any person that is involved in an accountable institution as an employee or similar

position can raise the following as a defence:

The fact that the matter was reported by him to the person that is responsible for ensuring that the

accountable institution complies with the Act;

That he/she had complied with the internal rules that regulate the reporting of information;

That he/she had reported the matter to his/her superior.

The above defences are only available to employees, partners, directors and trustees of accountable institutions.

Complying with Changes in Legislation

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The effect of the FICA is that a person of an accountable institution will be able to raise the same defence when

charged with contravening the Prevention of Organised Crime Act whereas any persons in the same capacity in

non-accountable institutions will not be able to raise the defence of internal reporting as far as a contravention of

the Prevention of Organised Crime Act goes. It would be the safest to report any activity that imposes a reporting

obligation directly to the FIC.

Conveyance of cash to or from the RSA (this section is not yet operational).

If any person who intends conveying or who has conveyed or who is conveying an amount of cash or a bearer

negotiable instrument in excess of the prescribed amount into or out of the RSA he/she must report on demand

all particulars relating to such an intention to a person identified by the Minister. Such an identified person shall

then in turn send a copy of the report to the FIC.

A person will only be guilty of an offence on relation to this provision if the person wilfully fails to report the

conveyance. The person that has the duty of forwarding the report to the FIC will be committing an offence if he

or she fails to do so. This may lead to a fine not exceeding R1 million or five years of imprisonment.

Electronic transfers of money to or from the RSA (this section is not yet operational).

An accountable institution will have a reporting duty if it receives or sends money via electronic transfer across

the borders of the RSA. It then has a duty to report the details of such a transfer within a prescribed period after

the transfer of the money.

When a request is received from the FIC to furnish additional information, this information should be furnished

without delay. When a transaction has been reported, the person responsible for the report is allowed to

continue the transaction after such report has been made. Only when the FIC instructs the reporter not to

proceed with the transaction should he/she terminate the transaction. Such an order may only be made by the

FIC if it has reasonable grounds to suspect that such a transaction is unusual or suspicious. The maximum

period for which the transaction may be suspended is five days unless the FIC is in possession of information

that proves the transaction to be indeed unlawful. The purpose of the five days is to grant the FIC time to

investigate the transaction and the client, and to establish whether there are grounds to cancel the transaction.

The five day period does not include Saturdays, Sundays or public holidays.

The FIC supersedes any other confidentiality agreement imposed by any other institution or controlling body

except that of professional privilege between an attorney and his/her client. This privilege relates to confidential

conversations between:

An attorney and his/her client that relates to legal advice or litigation that is pending or has commenced;

OR

An attorney and a third party that relates to litigation that is pending or has commenced.

A person or institution that has complied in good faith with the reporting requirements cannot be the subject of

criminal or civil action with relation to the specific case. A person that did report a matter to the FIC has the right

to have his/her identity kept secret. He/she will forfeit this right if he/she testifies in the proceedings, although

he/she cannot be compelled to testify. If a reporter does not testify, his/her report can be entered as evidence as

long as his/her identity is kept secret as well as any additional information.

Complying with Changes in Legislation

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Internal rules

An accountable institution must formulate and implement internal rules concerning:

The establishment and verification of the identity of its clients;

The nature and the type of records which must be kept;

The steps to be taken to determine when a transaction is reportable, to ensure the institution complies

with its duties under FICA.

An accountable institution must make its internal rules available to each of its employees involved in transactions

to which FICA applies and the internal rules must set out in detail the procedures to guide the compliance officer

and employees in the discharge of their duties under FICA.

An accountable institution must, on request, make a copy of its internal rules available to the FIC and to its

supervisory body.

Training and compliance officer

An accountable institution must provide training to its employees to enable them to comply with the provisions of

FICA and the internal rules applicable to them.

The accountable institution must appoint a compliance officer (section 43(b)) who must ensure compliance by

the accountable institution with FICA and the compliance by its employees with the internal rules.

The compliance officer will have to:

Become familiar with the money laundering laws and the particular compliance risks that the business

faces;

Ascertain the current level of compliance by the business and its employees with the duty to report

suspicious and unusual transactions;

Draft a compliance risk management plan, policy documents, appropriate internal rules, forms and

training material;

Train employees on the law and the relevant internal rules;

Implement the compliance risk management plan; and

Monitor compliance and report to management on compliance.

REGISTRATION OF ACCOUNTABLE AND REPORTING INSTITUTIONS

Every accountable and reporting institution must, register with the Centre, accompanied by the particulars as

may be required by the Centre. If a person does not have the technical capability to register in accordance that

person must submit the registration on a form specified by the Centre at the contact particulars specified by the

Centre from time to time for this purpose.

Any person or category of persons added to the list in Schedule 1 or Schedule 3 of the Act after 1 December

2010 must register with the Centre within 90 days after the amended Schedule 1 or Schedule 3 is gazetted.

Complying with Changes in Legislation

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Any person or category of persons who, on commencing a new business, fall within the list of accountable

institutions or reporting institutions in Schedule 1 and Schedule 3 respectively must, within 90 days of the day

the business opened, register with the Centre.

Note: The Centre must keep and maintain a register of every registered accountable and reporting institution

registered.

A registered accountable institution or reporting institution must notify the Centre, in writing, of any changes to

the particulars furnished within 90 days after such a change.

DIRECTIVES

The Centre may by notice in the Gazette, issue a directive to all institutions to whom the provisions of this Act

apply, regarding the application of this Act.

The Centre or a supervisory body may, in writing, issue a directive to any category of accountable institutions,

reporting institutions, or other category of persons to whom the provisions of the Act apply to:

Provide information, reports or statistical returns specified in the notice, within the period specified in the

notice;

Cease or refrain from engaging in any Act, omission or conduct in contravention of the Act;

Remedy an alleged non-compliance;

Meet obligations imposed by the Act.

The cost incurred in complying with a directive must be borne by the accountable institution, reportable

institution, or other person concerned.

A supervisory body may issue a directive only after consulting the Centre on the directive.

RESPONSIBILITY FOR SUPERVISION OF ACCOUNTABLE INSTITUTIONS

Every supervisory body is responsible for supervising and enforcing compliance with this Act or any order,

determination or directive made in terms of this Act by all accountable institutions, regulated or supervised by it.

The obligation forms part of the legislative mandate of any supervisory body and constitutes a core function of

that supervisory body.

A supervisory body may utilise any fees or charges it is authorised to impose or collect to defray expenditure

incurred in performing its obligations.

A supervisory body can:

Require an accountable institution supervised or regulated by it to report on that institution‟s compliance;

Issue or amend any licence, registration, approval or authorisation;

In making a determination as to whether a person is fit and proper to hold office in an accountable

institution, take into account any involvement, whether directly or indirectly, by that person in any non-

compliance with this Act or any involvement in any money laundering, terrorist or related activity.

A supervisory body must report in writing to the Centre on any action taken against any accountable institution.

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APPOINTMENT OF INSPECTORS

The Director or head of the supervisory body:

May appoint any person in the service of the Centre or supervisory body as an inspector;

May determine the remuneration to be paid to such a person;

Must issue a certificate of appointment signed by the director or head of the supervisory body.

The certificate of appointment must specify:

The full name of the person;

ID number;

Signature;

Photograph;

Description of capacity;

Extent of powers.

An inspector may undertake inspections in terms of section 45B.

When an inspector undertakes inspections he/she must be in possession of a certificate of appointment, and on

request show that certificate to any person affected.

INSPECTIONS

An inspector may:

At any reasonable time and on reasonable notice enter and inspect any premises of an accountable

institution, reportable institution or other person;

In writing direct a person to appear for questioning before the inspector at a time and place determined

by the inspector;

Order any person who had any document in his or her possession or under his/her control to produce

that document;

Open a strong room, safe or other container, or order any person to open it;

Use any computer system or equipment on the premises or require reasonable assistance from any

person on the premises to use that computer system to access any data or to reproduce any document;

Examine or make extracts from or copy any documentation or remove any documentation;

Seize any document which in the opinion of the inspector constitutes evidence of non-compliance.

An accountable institution, reportable institution or other person must without delay provide reasonable

assistance to an inspector.

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The Centre or supervisory body may recover all expenses incurred in conducting an inspection from the

accountable institution, reportable institution or other person.

An inspector may not disclose to any person not in the service of the Centre or supervisory body any information

obtained in the performance of his/her functions.

An inspector may disclose information in the following circumstances:

For the purpose of enforcing compliance;

For the purpose of legal proceedings;

When required to do so by a court;

If it is in the public interest to disclose.

An inspector of a supervisory body may conduct any inspection, other than a routine inspection, only after

consultation with the Centre.

No warrant is required for the purposes of an inspection in terms of this section.

ADMINISTRATIVE SANCTIONS

The Centre or supervisory body may impose an administrative sanction to any accountable institution, reporting

institution or other person when satisfied on available facts and information that the institution or person has

failed to comply with:

A provision of this Act;

A condition of a licence, registration, approval or authorisation issued or amended;

A directive issued;

A non-financial administrative sanction.

When determining an appropriate administrative sanction the following factors must be considered:

The nature, duration, seriousness and extent of the relevant non-compliance;

Whether the institution or person has previously failed to comply with any law;

Any remedial steps taken by the institution or person to prevent a recurrence of the non-compliance;

Any steps taken or to be taken against the institution or person by:

○ Another supervisory body; or

○ A voluntary association of which the institution or person is a member.

Any other relevant factor, including mitigating factors.

The Centre or supervisory body may impose any one or more of the following administrative sanctions:

A caution not to repeat the conduct which led to the non-compliance;

A reprimand;

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A directive to take remedial action or to make specific arrangements;

The restriction or suspension of certain specified business activities; or

A financial penalty not exceeding R10 million in respect of natural persons and R50 million in respect of

any legal person.

The Centre or supervisory body may:

Make recommendations to the relevant institution or person in respect of compliance with this Act;

Direct that a financial penalty must be paid by a natural person or persons for whose actions the relevant

institution is accountable in law, if that person or persons was or were personally responsible for the non-

compliance;

Suspend any part of an administrative sanction on any condition the Centre or the supervisory body

deems appropriate for a period not exceeding five years.

Before imposing an administrative sanction, the Centre or supervisory body must give the institution or person

reasonable notice in writing:

Of the nature of the alleged non-compliance;

Of the intention to impose an administrative sanction;

Of the amount or particulars of the intended administrative sanction.

The institution or person may, in writing, within a period specified in the notice, make representations as to why

the administrative sanction should not be imposed.

After considering any representations the Centre, or supervisory body may impose an administrative sanction

the Centre or supervisory body considers appropriate.

Upon imposing the administrative sanction the Centre or supervisory body must, notify the institution or person

in writing:

Of the decision and the reasons therefore; and

Of the right to appeal against the decision.

The Centre must, prior to taking a decision consult the relevant supervisory body, if applicable.

Any financial penalty imposed must be paid into the Criminal Assets Recovery Account.

If the institution or person fails to pay the financial penalty within the specified period and an appeal has not

been lodged within the required period, the Centre or supervisory body may forthwith file a certified copy of the

notice with the clerk or Registrar of a competent court, and the notice thereupon has the effect of a civil

judgement lawfully given in that court in favour of the Centre or supervisory body.

An administrative sanction may not be imposed if the respondent has been charged with a criminal offence in

respect of the same set of facts.

Complying with Changes in Legislation

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If a court assesses the penalty to be imposed on a person convicted of an offence in terms of this Act, the court

must take into account any administrative sanction imposed under this section in respect of the same set of

facts.

Unless the Director or supervisory body is of the opinion that there are exceptional circumstances present that

justify the preservation of the confidentiality of a decision the Director or supervisory body must make the

decision and the nature of any sanction imposed public if:

An institution or person does not appeal against a decision of the Centre or supervisory body within the

required period; or

The appeal Board confirms the decision of the Centre or supervisory body.

APPEAL

Any institution or person may appeal against a decision of the Centre or supervisory body to the appeal Board.

An appeal must be lodged within 30 days in the manner, and on payment of the fees, prescribed by the Minister.

An appeal shall take place on the date and at the place and time determined by the appeal Board.

An appeal is decided on the affidavits and supporting documents presented to the appeal Board by the parties to

the appeal.

The appeal Board may:

Summon any person who, in its opinion, may be able to give information for the purposes of the appeal or

who it believes has in his, her or its possession, custody, or control any document which has any bearing

upon the decision under appeal, to appear before it at a time and place specified in the summons, to be

questioned or to produce that document, and retain for examination any document so produced;

Administer an oath to or accept an affirmation from any person called as a witness at an appeal; and

Call any person present at the appeal proceedings as a witness and interrogate such person and require

such person to produce any document in his, her or its possession, custody or control, and such a person

shall be entitled to legal representation at his or her own expense.

The chairperson of the appeal Board determines any other procedural matters relating to an appeal.

Any party to an appeal is entitled to be represented at an appeal by a legal representative.

The appeal Board may:

Confirm, set aside or vary the relevant decision of the Centre or supervisory body; or

Refer a matter back for consideration or reconsideration by the Centre or the supervisory body concerned

in accordance with the directions of the appeal Board.

The decision of a majority of the members of the appeal Board shall be the decision of that Board.

The decision of the appeal Board must be in writing, and a copy thereof must be made available to the appellant

and the Centre or supervisory body.

If the appeal Board sets aside any decision of the Centre or supervisory body, the fees paid by the appellant in

respect of the appeal in question must be refunded to the appellant.

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If the appeal Board varies any such decision, it may in its discretion direct that the whole or any part of such fees

be refunded to the appellant.

A decision of the appeal Board may be taken on appeal to the High Court as if it were a decision of a magistrate

in a civil matter.

The launching of appeal proceedings does not suspend the operation or execution of a decision, unless the

chairperson of the appeal Board directs otherwise.

COMPLIANCE AND ENFORCEMENT

The following all constitute offences under the Act:

Failure to identify persons;

Failure to keep records;

Destroying or tampering with records;

Failure to give assistance to the FIC;

Failure to advice the Centre of a client;

Failure to report cash transactions (date of commencement to be proclaimed);

Failure to report suspicious or unusual transactions;

Unauthorised disclosure;

Failure to report conveyance of cash or bearer negotiable instrument into or out of Republic (date of

commencement to be proclaimed);

Failure to send a report to the Centre (date of commencement to be proclaimed);

Failure to report electronic transfers (date of commencement to be proclaimed);

Failure to comply with a request;

Failure to comply with direction by Centre or supervisory body;

Failure to comply with monitoring order;

Misuse of information;

Failure to formulate and implement internal rules;

Failure to register with the Centre;

Failure to provide training;

Offences relating to inspection;

Hindering or obstruction of appeal Board;

Failure to attend when summoned;

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Failure to answer fully or truthfully;

Obstructing of official in performance of functions;

Conducting transactions to avoid reporting duties;

Failure to appoint a compliance officer.

Penalties

A person convicted of an offence under FICA is:

Liable to imprisonment for a period not exceeding 15 years, or

To a fine not exceeding R100 000 000.

However, a person convicted of an offence mentioned in sec 55, 61A, 62, 62A, 62B, 62C, 62D is liable to

imprisonment for a period not exceeding 5 years or to a fine not exceeding R10 000 000.

SCHEDULES TO THE ACT

SCHEDULE 1 – LIST OF ACCOUNTABLE INSTITUTION

A practitioner who practices as defined in section 1 of the Attorneys Act, 1979 (Act 53 of 1979).

A board of executors or a trust company or any other person that invests, keeps in safe custody, controls

or administers trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988).

An estate agent as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976).

An authorised user of an exchange as defined in the Securities Services Act, 2004 (Act 36 of 2004).

A manager registered in terms of the Collective Investment Schemes Control Act, 2002 (Act 45 of 2002),

but excludes managers who only conduct business in Part 6 of the Collective Investment Schemes

Control Act (Act 45 of 2002).

A person who carries on the business of a bank as defined in the Banks Act, 1990 (Act 94 of 1990).

A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993).

A person who carries on a long-term insurance business as defined in the Long-Term Insurance Act,

1998 (Act 52 of 1998).

A person who carries on the business of making available a gambling activity as contemplated in section

3 of the National Gambling Act, 2004 (Act 7 of 2004) in respect of which a license is required to be issued

by the National Gambling Board or a provincial licensing authority.

A person who carries on the business of dealing in foreign exchange.

A person who carries on the business of lending money against the security of securities.

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A person who carries on the business of a financial services provider requiring authorisation in terms of

the Financial Advisory and Intermediary Services Act, 2002 (Act 37 of 2002), to provide advice and

intermediary services in respect of the investment of any financial product (but excluding a short term

insurance contract or policy referred to in the Short-term Insurance Act, 1998 (Act 53 of 1998) and a

health service benefit provided by a medical scheme as defined in section 1(1) of the Medical Schemes

Act, 1998 (Act 131 of 1998).

A person who issues, sells or redeems travellers‟ cheques, money orders or similar instruments.

The Postbank referred to in section 51 of the Postal Services Act, 1998 (Act 124 of 1998).

The Ithala Development Finance Corporation Limited.

A person who carries on the business of a money remitter.

SCHEDULE 2 – LIST OF SUPERVISORY BODIES

The Financial Services Board established by the Financial Services Board Act, 1990 (Act 97 of 1990).

The South African Reserve Bank in respect of the powers and duties contemplated in section 10(1)(c) in

the South African Reserve Bank Act, 1989, (Act 90 of 1989) and the Registrar as defined in sections 3

and 4 of the Banks Act, 1990, (Act 94 of 1990) and the Financial Surveillance Department in terms of

Regulation 22E of the Exchange Control Regulations, 1961.

The Estate Agency Affairs Board established in terms of the Estate Agency Affairs Act , 1976 (Act 112 of

1976).

The Independent Regulatory Board for Auditors established in terms of the Auditing Profession Act , 2005

(Act 26 of 2005).

The National Gambling Board established in terms of the National Gambling Act and retained in terms of

the National Gambling Act , 2004 (Act 7 of 2004).

A law society as contemplated in section 56 of the Attorneys Act, 1979 (Act 53 of 1979).

A provincial licensing authority as defined in section 1 the National Gambling Act, 2004 (Act 7 of 2004).

SCHEDULE 3 – LIST OF REPORTING INSTITUTIONS

A person who carries on the business of dealing in motor vehicles;

A person who carries on the business of dealing in Kruger rands.

INSPECTIONS BY IRBA

In assessing the compliance by a registered auditor with the minimum standards set by the IRBA in its official

document: “Combating Money Laundering and Financing of Terrorism, A Guide for Registered Auditors January

2011” the IRBA Inspections Department is conducting inspections during which the following will be assessed:

Anti-Money laundering policy document.

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Proof of registration with FIC in respect of the following (if applicable):

○ Entity within firm which meets the definition of an Accountable Institution;

○ Client as Accountable Institution;

○ Client as Reporting Institution.

Reporting procedures in terms of the following legislation:

○ Section 29 Financial Intelligence Centre Act 31/2001;

○ Protection of Democracy Against Terrorist and Related Activities Act (POCDATARA), Act 83/2004;

○ Protection and Combating of Corrupt Activities Act (PRECCA), Act 12/2004.

Monitoring procedures in respect of client‟s accountability in terms of section 28 FICA.

Procedures during an audit to detect possibility of money laundering.

Training schedules and programme in respect of staff.

Any other supplementary information you would like to present to substantiate compliance with the

guidelines.

To the extent that the firm may or may not be fully compliant the inspection will offer a platform to discuss

implementation of these criteria within the firm.

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FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT

PURPOSE OF THE ACT

The Act creates a formal system of regulating financial advisors and intermediaries.

Aggrieved consumers will be able to seek redress when they have been misled or misrepresented by a

representative or financial services provider.

The FAIS Act was introduced to regulate the business of all Financial Service Providers who give advice or

provide intermediary services to clients, regarding a wide range of financial products.

In terms of the Act, such Financial Services Providers need to be licensed, and professional conduct is

controlled through Codes of Conduct and enforcement measures.

DEFINITION OF ADVICE

Advice means any recommendation, guidance or proposal of a financial nature furnished, by any means or

medium, to any client or group of clients:

In respect of the purchase of any financial product; or

In respect of the investment in any financial product; or

On the conclusion of any other transaction, including a loan or cession, aimed at the incurring of any

liability or the acquisition of any right or benefit in respect of any financial product; or

On the variation of any term or condition applying to a financial product, on the replacement of any such

product, or on the termination of any purchase of or investment in any such product, and irrespective of

whether or not such advice:

○ Is furnished in the course of or incidental to financial planning in connection with the affairs of the

client; or

○ Results in any such purchase, investment, transaction, variation, replacement or termination, as

the case may be, being effected.

For the purposes of FAIS, advice does NOT include factual advice given:

On the procedure for entering into any transaction relating to a financial product;

In relation to the description of a financial product;

In response to a routine administrative query;

In the form of objective information about a specific financial product;

By the display or distribution of promotional material.

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In terms of FAIS, advice also excludes:

An analysis or report on a financial product without any express or implied recommendation as to its suitability

for a client.

Advice given by a board member or management, of a pension fund organisation or friendly society, or trustees,

or board member of a medical scheme to its members, on the benefits enjoyed or to be enjoyed by such

members.

INTERMEDIARY SERVICES

An intermediary service occurs when a person performs any act, other than giving advice, for or on behalf of a

client or product supplier. For example:

Doing something other than giving advice as a result of which the client will enter into a financial product

with a product supplier;

Keeping a financial product in safe custody;

Processing the claims of a client against a product supplier;

Collecting or accounting for premium payments.

In practice intermediary service means the facilitation of a financial transaction, where the service is not a

recommendation, guidance or proposal regarding financial products.

The difference between intermediary services and advisory services may be described simply as follows:

Intermediary services may facilitate the administration of the product;

Advisory services facilitate the client‟s decision in relation to a financial product.

AUTHORISATION OF FINANCIAL SERVICES PROVIDERS

A person may not act or offer to act as a financial services provider or a representative (unless such person has

been appointed as a representative of an authorised financial services provider) unless such person has been

issued with a license.

An authorised financial services provider or representative may only conduct financial service related business

with a person rendering financial services, if:

That person has been issued with a licence and the conditions and restrictions of that licence authorises

the rendering of that financial services, or

Is a representative as contemplated in this Act.

Exemption given to certain financial service providers

A person who is not authorised as a financial services provider, and who renders financial services (excluding

the administration of assistance policies) in respect of assistance policies only will be exempted from section

7(1) until 21 August 2013 (Exempted Provider), if such a person complies with the exemption conditions.

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An assistance policy refers to a life policy in respect of which the aggregate of:

The value of the policy benefits, other than an annuity, to be provided (not taking into account any

bonuses to be determined in the discretion of the long-term insurer); and

The amount of the premium in return for which an annuity is to be provided, does not exceed

R18 000.

APPLICATION FOR AUTHORISATION

An application for an authorisation, must be submitted to the Registrar, and be accompanied by information to

satisfy the Registrar that the applicant complies with the requirements for fit and proper financial services

providers or categories of providers, in respect of:

Personal character qualities of honesty and integrity;

The competence and operational ability; and

The applicant's financial soundness.

Where an application is granted, the Registrar must issue a license authorising the applicant to act as a financial

services provider.

A licensee must:

Display a certified copy of the license in a prominent and durable manner within every business premises

of the licensee;

Ensure that a reference to the fact that such a license is held is contained in all business documentation,

advertisements and other promotional material;

Ensure that the license is at all times immediately, or within a reasonable time available for production to

any person requesting proof of license.

LAPSING OF LICENCE

A license lapses:

Where the licensee, being a natural person:

○ Becomes permanently incapable of carrying on any business due to physical or mental disease or

serious injury;

○ Is finally sequestrated; or

○ Dies;

○ Where the licensee, being any other person, is finally liquidated or dissolved;

○ Where the business of the licensee has become dormant; and

○ In any other case, where the licensee voluntarily and finally surrenders the license to the

Registrar.

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QUALIFICATIONS OF REPRESENTATIVES AND DUTIES OF AUTHORISED

FINANCIAL SERVICES PROVIDERS

An authorised financial services provider must at all times be satisfied that the provider's representatives, and

key individuals of such representatives, are, when rendering a financial service on behalf of the provider,

competent to act.

The authorised financial services provider must maintain a register of representatives, and key individuals of

such representatives, which must be regularly updated and be available to the Registrar for reference or

inspection purposes.

Such register must:

Contain every representative's or key individual's name and business address, and state whether the

representative acts for the provider as employee or as mandatory; and

Specify the categories in which such representatives are competent to render financial services.

DEBARMENT PROCESS OF REPRESENTATIVES

Procedures to be followed by all financial services providers in order to notify the Registrar of financial services

providers regarding debarment of representatives:

The provider should debar any representative who does not comply with the fit and proper requirements;

Debarred representative(s) must be removed from the register of representatives that the provider must

maintain.

The provider should inform the Registrar of Financial Services Providers in writing of the debarment of

representatives or key individuals of the representative within 15 days, and provide the Registrar with the

reasons for the debarment in such format as the Registrar may require.

The Registrar may automatically debar a person who, in his opinion, is no longer possessed of personal

character qualities of honesty and integrity.

The Registrar may make known any such debarment and the reasons therefore on the official website or by

means of any other appropriate public media.

COMPLIANCE OFFICERS AND COMPLIANCE ARRANGEMENTS

Any authorised financial services provider with more than one key individual or one or more representatives

must, appoint one or more compliance officers to monitor compliance with this Act, and to take responsibility for

liaison with the Registrar.

Such person must comply with the fit and proper requirements.

A compliance officer must be approved by the Registrar.

A compliance officer or must submit reports to the Registrar in the manner and regarding the matters, as from

time to time determined by the Registrar by notice in the Gazette for different categories of compliance officers.

Qualifications

A compliance officer may be any person with suitable qualifications and experience as gazetted.

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Duties upon termination of appointment

A compliance officer whose appointment is terminated must submit to the Registrar:

A statement of what the compliance officer believes to be the reasons for that termination; and

An Irregularity Report if the compliance officer would, but for that termination, have had reason to submit

such a report.

A failure by a compliance officer to submit reports to the Registrar is deemed to be a failure by the provider.

ACCOUNTING AND AUDIT REQUIREMENTS

An authorised financial services provider must:

Maintain full and proper accounting records on a continual basis, brought up to date monthly; and

Annually prepare financial statements reflecting:

○ The financial position of the entity at its financial year- end;

○ The results of operations, the receipt and payment of cash and cash equivalent balances;

○ All changes in equity for the period then ended; and

○ A summary of significant accounting policies and explanatory notes.

An authorised financial services provider must cause the statements to be audited and reported on by an

external auditor approved by the Registrar.

The financial statements must be submitted by the FSP to the Registrar not later than four months after the end

of the provider's financial year, or such longer period as may be allowed by the Registrar.

The FSP must maintain records in respect of money and financial products held on behalf of clients, and must,

in addition to and simultaneously with the financial statements submit to the Registrar a report, by the auditor

who performed the audit, which confirms for different categories of financial services providers:

The amount of money and financial products at year - end held by the provider on behalf of clients;

That such money and financial products were throughout the financial year kept separate from those of

the business of the authorised financial services provider and, report any instance of non-compliance

identified in the course of the audit and the extent thereof.

CHANGE IN FINANCIAL YEAR- END

A financial services provider may not change a financial year end without the approval of the Registrar.

The approval of the Registrar is not necessary where a change of a financial year end has been approved by

another regulatory authority, other than the Companies and Intellectual Property Commission, regulating the

financial soundness of the provider.

Where a change of a financial year end was approved by another regulatory authority the provider must inform

the Registrar of that approval within 14 days of the approval being granted.

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EXEMPTION OF FSP’S FROM AUDITED FINANCIAL STATEMENT REQUIREMENTS

The following services providers are exempt from the audit requirement:

"FSP limited by product" means an authorised Category I FSP who renders financial services limited to

financial products belonging to Long-term Insurance subcategory A or friendly society benefits provided

by a friendly society and who receives or holds clients' money.

"FSP" means an authorised Category I FSP who does not receive premiums (contemplated in the

Short-term Insurance Act, 1998, and the Long-term Insurance Act, 1998) or otherwise receive or

hold clients' money or assets.

In the case of a close corporation, an auditor's involvement is not obligatorily, only that of an accounting officer.

The Companies Act, 2008, has different requirements regarding the submission of financial statements for

different types of companies. The extent to which annual financial statements of companies will have to be

reviewed or audited depends on various criteria.

In view of the aforesaid the Registrar is satisfied that there are reasonable grounds for relaxation of the

application of the audit requirements. FSPs and FSPs limited by product are therefore relieved from the

obligation to cause annual financial statements to be audited and reported on by an external auditor. However,

the FSP and FSP limited by product remains responsible for the accounting and reporting obligations detailed in

section 19 of the Act.

Where the FSP and FSP limited by product is otherwise obliged by law to have financial statements reviewed,

audited and reported on, or otherwise prepared, such statements must be submitted to the Registrar.

An FSP and FSP limited by product who wish to be exempt from the audit requirement must within six months

after publication of the Notice or upon application for authorisation in case of an unauthorised FSP:

Register the exemption with the Registrar within the prescribed format and manner; and

Must inform the Registrar in writing within 15 days after the change has taken place, of any change in

respect of the information that was submitted for purposes of registering the exemption.

REPORTING DUTY OF AUDITORS AND COMPLIANCE OFFICERS

Sections 16 and 19 of the Act state that, despite anything to the contrary contained in any law, the compliance

officer or auditor of an authorised financial services provider must inform the Registrar in writing of any

irregularity or suspected irregularity in the conduct or the affairs of that provider:

Of which the compliance officer or auditor became aware in performing functions as compliance officer or

auditor; and

Which, in the opinion of the compliance officer or auditor, is material.

Materiality will depend on the individual circumstances and involve considering, amongst others, its impact on

the ability to give financial services as authorised, the actual or potential financial loss to clients and the number

or frequency of similar previous irregularities.

Reportable matters are those that will have a significant adverse effect on the regulatory authorisation or on the

clients.

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Report by the compliance officer

A compliance officer must report certain material irregularities (Immediate Reporting) to:

Its employer/client without undue delay (unless it can be shown that a reasonable person would have

believed that the employer/client would use the time to hide the information etc), notifying them that the

matter will be reported and giving them a reasonable opportunity to provide written comments as to why

the irregularity is in fact not material or the steps that will be taken to address it; and

The FSB without undue delay, including any response by the employer/client, reasons why the

irregularity should not be considered material and steps taken by the employer/client since being

informed of the irregularity, to rectify it.

Examples of Immediate Reporting circumstances include:

Serious licence transgressions (e.g. doing business after an authorisation is refused, suspended,

withdrawn or lapsed);

Serious product transgressions (e.g. purporting to be licensed to render financial services if that product

is not defined in the Act);

Serious client transgressions (e.g. category 2, 2A or 3 financial services providers selling financial

products owned by themselves to clients or buying financial products owned by clients for its own

account);

Serious fraud transgressions (e.g. fraud that may have an adverse impact on the business and its ability

to render financial services); and

Continued non-compliance after the compliance officer directed that rectification was required.

A compliance officer may delay reporting certain irregularities (Delayed Reporting) based on the circumstances

and low materiality and allow an appropriate time period for an irregularity to be rectified, as determined by the

individual circumstances appropriate to the nature, scale and complexity of the business.

Examples of Immediate Reporting circumstances (always depending on the materiality test) include non-

compliance with aspects of:

The Act (e.g. operating without a key individual where the provider is not a sole proprietor);

FAIS regulations (e.g. non-compliance with requirements in respect of the operational ability of the

provider); and

Licence conditions.

In both instances the compliance officer must document the process - if possible they should get legal advice on

the keeping of the particular records and the formal manner of reporting to the FSB.

Report by the auditor

An individual registered auditor that has reason to believe that a reportable irregularity has taken place or is

taking place must, without delay, send a written report to the Regulatory Board, giving particulars of the

reportable irregularity and such other information and particulars as the registered auditor considers appropriate.

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The registered auditor must:

Within 3 days of sending the report notify the members of the management board of the entity in writing

of the sending and the provisions of this requirement, including a copy of the report to the Regulatory

Board;

Within 30 days from the date the report was sent take all reasonable measures to discuss the report with

the members of the management board and giving them a chance to make representations on the report;

Send another report to the Board, containing detailed particulars and information supporting a statement

that they believe:

○ No reportable irregularity has taken place or is taking place;

○ The suspected reportable irregularity is no longer taking place and that adequate steps have been

taken for the prevention or recovery of any loss as a result thereof, if relevant; or

○ The reportable irregularity is continuing.

The Board must as soon as possible after receipt of a report containing a statement that a reportable

irregularity is continuing, notify any appropriate regulator (including the FSB).

Notes

A registered auditor does not incur any liability to a client or any third party for a report made in the ordinary

course of duties, unless it is proven that the report was made maliciously, fraudulently or pursuant to a negligent

performance of duties.

This Act defines reportable irregularity i.e. any unlawful act, or failure to act, committed by any person

responsible for the management of an entity, which:

Caused or is likely to cause material financial loss to the entity or to any partner, member, shareholder,

creditor or investor of the entity in respect of his, her or its dealings with that entity;

Is fraudulent or amounts to theft; or

Represents a material breach of any fiduciary duty owed by such person to the entity or any partner,

member, shareholder, creditor or investor of the entity under any law applying to the entity or the conduct

or management thereof.

Material breach is not defined.

DETERMINATION OF FIT AND PROPER REQUIREMENTS

Personal Character Qualities of Honesty and Integrity An applicant must be a person who is honest and has integrity.

Any of the following factors constitutes prima facie evidence that the applicant does not qualify:

Has within a period of five years preceding the date of application:

○ Been found guilty in any civil or criminal proceedings by a court of law (whether in the Republic or

elsewhere) of having acted fraudulently, dishonestly, unprofessionally, dishonourably or in breach

of a fiduciary duty;

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○ Been found guilty by any professional or financial services industry body (whether in the Republic

or elsewhere) recognised by the Board, of an act of dishonesty, negligence, incompetence or

mismanagement, sufficiently serious to impugn the honesty and integrity of the applicant;

○ Been denied membership of any body on account of an act of dishonesty, negligence,

incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the

applicant;

○ Been found guilty by any regulatory or supervisory body (whether in the Republic or elsewhere),

recognised by the Board; or

○ Had its authorisation to carry on business refused, suspended or withdrawn by any such body, on

account of an act of dishonesty, negligence, incompetence or mismanagement sufficiently serious

to impugn the honesty and integrity of the applicant;

○ Had any licence granted to the applicant by any regulatory or supervisory body suspended or

withdrawn by such body on account of an act of dishonesty, negligence, incompetence or

mismanagement, sufficiently serious to impugn the honesty and integrity of the applicant.

Has at any time prior to the date of application been disqualified or prohibited by any court of law

(whether in the Republic or elsewhere) from taking part in the management of any company or other

statutorily created, recognised or regulated body, irrespective whether such disqualification has since

been lifted or not.

Competency

A key individual must have at least one year‟s experience in managing or overseeing the financial services of an

organisation, and the experience period must relate to the period required for the category or subcategory

he/she is approved for.

A representative must have the relevant product related experience.

The qualification requirements must also be met before the Registrar will approve the application. There is a list

of recognised qualifications that can be consulted.

If a specific qualification does not appear on the list, application can be made to the Registrar to approve the

qualification.

All key individuals are required to write regulatory examinations. There are two levels of regulatory examinations.

The first level regulatory examination deals with the legislation, such as FAIS and FICA, and the subordinate

legislation such as the regulations and codes of conduct. The second level regulatory examinations deals with

product specific information.

Key individuals are only required to write the second level regulatory exams if they give advice or render

intermediary services (act as representatives).

CPD refers to continuous professional development. This occurs after the key individual has met the

requirements regarding the regulatory examinations. The purpose of CPD is to help the key individual to keep

their knowledge and understanding of the legislation and industry up to date, without you having to obtain more

qualifications or examinations. Depending on the category or subcategory the key individual is authorised for,

needs to complete between 15 and 60 hours of CPD activities over a 3 year cycle.

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Any employer, conference organiser, industry body or professional association may apply to the FSB to have

activities registered as CPD activities for FAIS purposes. Application forms are available from the FSB.

These activities can include:

Courses, conferences, seminars;

Studies leading to formal assessment; distance learning, additional qualifications, or attendance at formal

courses;

Workshops;

Structured self study programmes including web and computer based programmes that assess

knowledge.

It is essential to obtain evidence of attendance at these programmes and that the compliance officer of the

company keeps record of CPD hours to report back to the FSB.

Timeline for first level regulatory examination

The first level regulatory examination must be completed by:

30 June 2012; or

30 September 2012, subject to the condition that the provider must, on or before 30 June 2012, have had

written the first level regulatory examination and have failed to successfully complete it.

Operational ability

An applicant must have and be able to maintain the operational ability to fulfil the responsibilities, including at

least the following:

A fixed business address;

Adequate access to communication facilities including at least a full-time telephone or cell phone service,

and typing and document duplication facilities;

Adequate storage and filing systems for the safe-keeping of records, business communications and

correspondence; and

An account with a registered bank including, where required by the Act, a separate bank account for

client funds.

An applicant must have in place, the appropriate money laundering control systems and provision for training of

staff, including identification, record-keeping and reporting procedures, where required under the Financial

Intelligence Centre Act, 2001.

Financial Soundness

An applicant must not be an unrehabilitated insolvent or under liquidation or provisional liquidation.

Category I that does not hold client assets or receive premiums or money:

Assets (excluding goodwill, other intangible assets and investments in related parties) must at all times

exceed the FSP's liabilities (excluding loans validly subordinated in favour of all other creditors).

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Category I that holds client assets or receive premiums or money:

Assets (excluding goodwill, other intangible assets and investments in related parties) must exceed the

FSP's liabilities (excluding loans validly subordinated in favour of all other creditors);

Current assets sufficient to meet current liabilities; and

Liquid assets equal to or greater than 4/52 weeks of annual expenditure.

Category II and IV:

Assets (excluding goodwill, other intangible assets and investments in related parties) must exceed the

FSP's liabilities (excluding loans validly subordinated in favour of all other creditors);

Current assets sufficient to meet current liabilities; and

Liquid assets equal to or greater than 8/52 weeks of annual expenditure.

Categories IIA and III:

Assets (excluding goodwill, other intangible assets and investments in related parties) must exceed the

FSP's liabilities (excluding loans validly subordinated in favour of all other creditors) by at least

R3 000 000;

Current assets sufficient to meet current liabilities; and

Liquid assets equal to or greater than 13/52 weeks of annual expenditure.

PROFESSIONAL INDEMNITY AND FIDELITY INSURANCE COVER

A person who is a Category I provider on the date of commencement must, with effect from a date 12 months

after that date, maintain:

Professional indemnity of a minimum of R1 000 000 ; or

Guarantees of a minimum of R1 000 000.

A person who is a Category I or IV provider and who receives or holds clients financial products or funds of or on

behalf of a client on the date of commencement must, with effect from a date 12 months after that date,

maintain:

Guarantees of a minimum R1 000 000 ; or

Suitable fidelity insurance cover of a minimum of R1 000 000.

A person who is a Category II or IIA and who receives or hold clients financial products or funds of or on behalf

of a client on the date of commencement must, with effect from a date six months after that date, maintain:

Guarantees of a minimum amount of R5 000 000 , or

Suitable professional indemnity or fidelity insurance cover of a minimum of R5 000 000, respectively.

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A person who is a Category III provider and who receives or hold clients financial products or funds of or on

behalf of a client on the date of commencement must, with effect from a date six months after that date,

maintain:

Guarantees of a minimum amount of R5 000 000 ; or

Professional indemnity and fidelity insurance cover of a minimum amount of R5 000 000, respectively.

FINANCIAL INTEREST AND CONFLICT OF INTEREST MANAGEMENT POLICY

BACKGROUND

The Registrar of Financial Services Providers has amended the General Code of Conduct for authorised

financial services providers and representatives, to make provision for new requirements relating to:

Conflict of interest; and

Prohibition on the giving and receiving of certain types of financial interest.

Conflict of interest is defined as any situation in which a provider or representative has an actual or potential

interest that may, in rendering financial service to a client:

Influence the objective exercise of his, her or its obligations to a client; or

Prevent a provider or representative from rendering an unbiased and fair financial service, or from acting

in the interests of a client, including, but not limited to:

○ A financial interest;

○ An ownership interest; or

○ Any relationship with a third party.

AVOID OR MITIGATE A CONFLICT OF INTERESTS

The FSP must take steps to avoid or mitigate a conflict of interest and must disclose the full nature of such

conflict in writing to the client, together with the measures taken to avoid or mitigate the conflict.

FINANCIAL INTEREST WHICH A FSP MAY RECEIVE FROM OR PAY TO A THIRD PARTY

Section 3A(1)(a) sets out the financial interest which a FSP may receive from or pay to a third party, restricting it

principally to commissions and fees authorised under the Long Term Insurance Act, the Short Term Insurance

Act and the Medical Schemes Act. Provision is made for fees earned or paid in terms of any other legislation.

NO FINANCIAL INTEREST TO A REPRESENTATIVE FOR GIVING PREFERENCE

Section 3A(1)(b), prohibits a FSP from offering a financial interest to a representative for giving preference to the

quantity of business secured to the exclusion of quality, or for giving preference to a specific product supplier,

where the client has a choice of more than one product provider, or for giving preference to a specific product of

a supplier, where more than one product from the same provider is available to the client. Section 3A(1)(c)

applies to entities which are both product providers and financial services providers.

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CONFLICT OF INTEREST MANAGEMENT POLICY

Section 3A(2), requires all FSP‟s to adopt, maintain and implement a conflict of interest management policy.

Section 3A(2)(b) details the contents of such a policy, whilst section 3A(2)(c) to (f) provide for measures of

adoption, employee and representative education on the policy, monitoring procedures and the appropriate

publishing of such a policy. The stated aim is to have it accessible for public inspection at all reasonable times.

ANTI-AVOIDANCE

Section 3A(3), prohibits any FSP or representative from attempting to collude with any associate in an attempt to

avoid, limit or circumvent compliance with Section 3 of the Code.

REPORTING DUTY

Section 3A(4), requires the compliance officer of a FSP to report on the provider‟s conflict of interest

management policy, to the Registrar. The aspects which should be reported on include implementation,

monitoring, compliance with and accessibility of the conflict of interest management policy.

OFFENCES AND PENALTIES

Any person who:

Contravenes or fails to comply with a provision of section 7(1) or (3), 8(8), 8(10)(a), 13(1) or (2), 14(1),

17(4), 18, 19(2), 19(4) or 34(4) or (6);

In any application in terms of this Act, deliberately makes a misleading, false or deceptive statement, or

conceals any material fact;

In the execution of duties imposed by this Act gives an appointed auditor or compliance officer

information which is false, misleading or conceals any material fact; or

Is not a representative appointed or mandated by an authorised financial services provider, and who in

any way declares, pretends, gives out, maintains or professes to be a person who is authorised to render

financial services to clients on the basis that the person is appointed or mandated as a representative.

Is guilty of an offence and is on conviction liable to a fine not exceeding R10 000 000 or imprisonment for a

period not exceeding 10 years, or both such fine and such imprisonment.

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THE NATIONAL CREDIT ACT NO.34 OF 2005

PURPOSE OF THE ACT

The Act was passed into law by Parliament and signed by the President in March 2006. This aims to protect

consumers taking credit or entering into consumer credit transactions.

In addition, the Act makes provision for the control and regulation of all credit transactions, including mortgages,

credit cards, overdrafts, micro-loans and pawn broking transactions.

The Act also regulates all institutions that provide consumer credit, including banks, furniture companies,

clothing and other retailers, micro-lenders and pawnbrokers.

Provision is made in the Act for the registration of debt counsellors and debt restructuring for over-indebted

consumers. The Act also regulates credit bureaux and consumer credit information, providing for free access to

this information, kept by credit bureaux, and for a process by which any errors on the credit records can be

corrected.

OVERVIEW OF THE ACT

Chapter 1 – Interpretation, Purpose and Application

Chapter 2 – Consumer Credit Institutions

Chapter 3 – Consumer Credit Industry Regulation

Chapter 4 – Consumer Credit Policy

Chapter 5 – Consumer Credit Agreements

Chapter 6 – Collection, repayment, surrender and debt enforcement

Chapter 7 – Dispute settlement other than debt enforcement

Chapter 8 – Enforcement of Act

Chapter 9 – General provisions

Schedule 1 – Rules concerning conflicting legislation

Schedule 2 – Amendment of Laws

Schedule 3 – Transitional Provisions

CHAPTER 1 – INTERPRETATION, PURPOSE AND APPLICATION

DEFINITIONS

Consumer

The party to whom goods or services are sold under a discount transaction, incidental credit agreement

or instalment agreement;

The party to whom money is paid, or credit granted, under a pawn transaction;

The party to whom credit is granted under a credit facility;

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The mortgagor under a mortgage agreement;

The borrower under a secured loan;

The lessee under a lease;

The guarantor under a credit guarantee; or

The party to whom or at whose direction money is advanced or credit granted under any other credit

agreement.

Credit provider

The party who supplies goods or services under a discount transaction, incidental credit agreement or

instalment agreement;

The party who advances money or credit under a pawn transaction;

The party who extends credit under a credit facility;

The mortgagee under a mortgage agreement;

The lender under a secured loan;

The lessor under a lease;

The party to whom an assurance or promise is made under a credit guarantee;

The party who advances money or credit to another under any other credit agreement; or

Any other person who acquires the rights of a credit provider under a credit agreement.

Educational loan

A student loan;

A school loan; or

Another credit agreement entered into by a consumer for purposes related to the consumer‟s adult

education, training or skill‟s development.

Incidental credit agreements

Incidental credit agreement: means an agreement, irrespective of its form, in terms of which an account was

tendered for goods or services that have been provided to the consumer, or goods or services that are to be

provided to a consumer over a period of time and either or both of the following conditions apply:

A fee, charge or interest became payable when payment of an amount charged in terms of that account

was not made on or before a determined period or date; or

Two prices were quoted for settlement of the account, the lower price being applicable if the account is

paid on or before a determined date, and the higher price being applicable due to the account not having

been paid by that date.

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Installment agreement

Installment agreement means a sale of movable property in terms of which:

All or part of the price is deferred and is to be paid by periodic payments;

Possession and use of the property is transferred to the consumer;

Ownership of the property either:

○ Passes to the consumer only when the agreement is fully complied with; or

○ Passes to the consumer immediately subject to a right of the credit provider to re-possess the

property if the consumer fails to satisfy all of the consumer‟s financial obligations under the

agreement.

Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the

amount that has been deferred.

Discount transaction

Goods or services are to be provided to a consumer over a period of time; and

More than one price is quoted for the goods or service, the lower price being applicable if the account is

paid on or before a determined date, and a higher price or prices being applicable if the price is paid after

that date, or is paid periodically during the period.

Lease

Temporary possession of any movable property is delivered to or at the direction of the consumer, or the

right to use any such property is granted to or at the direction of the consumer;

Payment for the possession or use of that property is:

○ Made on an agreed or determined periodic basis during the life of the agreement; or

○ Deferred in whole or in part for any period during the life of the agreement.

Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the

amount that has been deferred; and

At the end of the term of the agreement, ownership of that property either:

○ Passes to the consumer absolutely; or

○ Passes to the consumer upon satisfaction of specific conditions set out in the agreement.

Large credit agreement

A credit agreement which is greater than R250 000; or

A mortgage.

Intermediate agreement

A credit agreement of between R15 001 and R250 000;

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Except a pawn transaction and a mortgage.

Small agreement

Any pawn transaction;

A credit agreement of up to R15 000, excluding a mortgage.

APPLICATION OF THE ACT

This Act applies to every credit agreement between parties dealing at arm‟s length and made within, or having

an effect within, the Republic, except a credit agreement in terms of which the consumer is:

A juristic person whose asset value or annual turnover, together with the combined asset value or annual

turnover of all related juristic persons, at the time the agreement is made, equals or exceeds R1 000 000;

The State; or

An organ of State;

A large agreement in terms of which the consumer is a juristic person whose asset value or annual

turnover is, at the time the agreement is made, below R1 000 000;

A credit agreement in terms of which the credit provider is the Reserve Bank of South Africa; or

A credit agreement in respect of which the credit provider is located outside the Republic.

The asset value or annual turnover of a juristic person at the time a credit agreement is made, is the value stated

as such by that juristic person at the time it applies for or enters into that agreement.

In any of the following arrangements, the parties are not dealing at arm‟s length:

A shareholder loan or other credit agreement between a juristic person, as consumer, and a person who

has a controlling interest in that juristic person, as credit provider;

A loan to a shareholder or other credit agreement between a juristic person, as credit provider, and a

person who has a controlling interest in that juristic person, as consumer;

A credit agreement between natural persons who are in a familial relationship and:

○ Are co-dependent on each other; or

○ One is dependent upon the other; and

Any other arrangement in which each party is not independent of the other and consequently does not

necessarily strive to obtain the utmost possible advantage out of the transaction; or

That is of a type that has been held in law to be between parties who are not dealing at arm‟s length:

A juristic person is related to another juristic person if:

○ One of them has direct or indirect control over the whole or part of the business of the other; or

○ A person has direct or indirect control over both of them.

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The Act has limited application to so-called „incidental‟ credit agreements. These are defined as goods or

services provided to the consumer whereby interest becomes payable only when payment is not made on or

before a predetermined period. The providers of such types of credit do not have to register in terms of the Act.

An incidental credit agreement is distinguished from a trade account. A trade account is one where a credit limit

is set for a customer. This is not the same thing as a credit facility. Provided interest is not charged on any

overdue amount, the agreement to provide credit does not fall within the ambit of the Act.

CHAPTER 2 – CONSUMER CREDIT INSTITUTIONS

THE NATIONAL CREDIT REGULATOR

The National Credit Regulator (NCR) was established as the regulator under the National Credit Act 34 of 2005

(the Act) and is responsible for the regulation of the South African credit industry. It is tasked with carrying out

education, research, policy development, registration of industry participants, investigation of complaints, and

ensuring enforcement of the Act.

The Act requires the Regulator to promote the development of an accessible credit market, particularly to

address the needs of historically disadvantaged persons, low income persons, and remote, isolated or low

density communities.

The NCR is also tasked with the registration of credit providers, credit bureaux and debt counsellors; and

enforcement of compliance with the Act.

THE NATIONAL CONSUMER TRIBUNAL

The Tribunal is an independent body provided for under the Act. It is tasked with the hearing of cases arising

from non-compliance with the Act as well as issuing of fines for contraventions thereof. Consumers and Credit

providers may appeal to the Tribunal against the decisions of the NCR.

CHAPTER 3 – CONSUMER CREDIT INDUSTRY REGULATION

REGISTRATION REQUIREMENTS

The Act requires the registration of credit providers, credit bureaux and debt counsellors. Credit providers must

register if they have at least 100 credit agreements (excluding incidental credit agreements); or total principal

debt of more than R500 000.

REGISTRATION AND RENEWAL FEES

The Minister may prescribe application fees to be paid as follows:

An initial registration fee upon registration;

An annual renewal fee.

CERTIFICATE, VALIDITY AND PUBLIC NOTICE OF REGISTRATION

Upon registering an applicant, the NCR must:

Issue a certificate of registration;

Enter the registration in the register;

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Assign a unique registration number.

NATIONAL RECORD OF REGISTRATIONS

The NCR must establish and maintain a register of all persons who have been registered.

CHAPTER 4 – CONSUMER CREDIT POLICY

RIGHT TO APPLY FOR CREDIT

The NCA provides that every person, whether an individual, a group of people or a company, has the right to

apply for credit from any credit provider. This right, however, does not prevent the credit provider from refusing

to grant the credit, provided the reason for refusing to grant the credit is based on business grounds that are in

line with their normal credit risk evaluation processes (section 60).

THE RIGHT NOT TO BE DISCRIMINATED AGAINST WHEN APPLYING FOR CREDIT

Consumers who are applying for credit are further protected against unfair discrimination by a credit provider.

The Act forbids credit providers from discriminating against consumers on the basis of colour, race, age, political

affiliation, sexual orientation, religious belief, or affiliation to any particular trade union. A consumer who is of the

opinion that he/she has been discriminated against for these reasons may act against the credit provider through

the Equality Court, or may complain to the National Credit Regulator which will refer the matter to the Equality

Court (section 61).

THE RIGHT TO BE GIVEN REASONS FOR CREDIT BEING DECLINED

The NCA gives a consumer, whose credit application has been declined by a credit provider, the right to request

written reasons explaining why his/her application for credit has been declined. If the decision to decline the

consumer's request is based on an unfavourable report received from a credit bureau, the Act stipulates that the

credit provider must supply the consumer in writing with the name, address and other contact details of the credit

bureau from which the credit provider received the information (section 62).

THE RIGHT TO BE GIVEN DOCUMENTS IN AN OFFICIAL LANGUAGE THAT THE CONSUMER

UNDERSTANDS

A consumer has the right to receive documents from a credit provider in an official language that he/she

understands. Documents that a credit provider must give to a consumer include the credit agreement, quotations

and statements. This requirement is, however, subject to reasonability and factors such as usage, practicality,

expenses, region and the needs of the consumers served by the credit provider. The credit provider must make

a proposal to the NCR on the languages in which it intends making its documents available and the NCR will

approve these proposals (section 63).

THE RIGHT TO BE GIVEN DOCUMENTS IN PLAIN AND UNDERSTANDABLE LANGUAGE

A consumer has the right to receive information and documents in plain language. This means that the contents,

meaning and importance of the document must be easy to understand. In this regard the NCR may issue

guidelines to indicate what would be regarded as “plain language” (section 64).

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THE RIGHT TO BE GIVEN DOCUMENTS RELATED TO THE CREDIT TRANSACTION

The NCA gives the consumer the right to receive documents relating to the credit agreement in a manner that

the consumer chooses. A consumer may choose to receive documents either in person at the credit provider's

place of business, or by fax, email, or by a printable web page.

A consumer has the right to receive one replacement copy of documents from the credit provider, free of charge,

but only if the consumer requests the replacement copy within a year of the delivery of the original documents.

For any additional replacement documents, the consumer will be expected to pay the credit provider (section

65).

THE RIGHT TO CONFIDENTIAL TREATMENT

The consumer's right to confidentiality is protected by the provision that any person or organisation that receives

or compiles confidential information on a consumer must use the information for the sole purpose for which the

consumer has given his/her consent, unless the usage or release of such information is a requirement in terms

of the NCA. The NCA further stipulates that the person or organisation holding the consumer's confidential

information may only release it as specifically instructed by the consumer or by a court of law (section 68).

THE RIGHT TO ACCESS AND CHALLENGE INFORMATION HELD BY A CREDIT BUREAU

The NCA gives the consumer the right to:

Access information that a credit bureau has in relation to him/her. The information must be given to the

consumer free of charge every twelve months or for a fee if the consumer requests the information more

than once within twelve months. Such a fee may not exceed R 20.

Challenge and request proof of the accuracy of information held by a credit bureau. Should a credit

bureau fail to provide the consumer with proof of accuracy of information that the consumer disputes, it is

compelled to remove the disputed information from its records.

Be advised by a credit provider before certain adverse information about that consumer is passed on to a

credit bureau. The consumer is also entitled to receive a copy of that information on request (section 72).

NEGATIVE OPTION MARKETING

Negative option marketing occurs when a credit provider offers a consumer credit, for which the consumer did

not apply, and the offer states that the agreement will automatically come into existence unless the consumer

rejects the offer. The Act prohibits this type of marketing. Any credit agreement that a consumer enters into on

this basis is unlawful.

The Act further requires that at the time of signing a credit agreement the consumer must be given an

opportunity to decide on the following:

To have the consumer's credit limit under a credit facility automatically increased every twelve months.

To receive any marketing communication or to be included in any customer or marketing list of the credit

provider that is to be sold or distributed (section 74).

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PROHIBITION OF MARKETING AND SALES OF CREDIT AT HOME AND AT WORK

A credit provider may not harass a prospective consumer with the aim of entering into a credit agreement with

the consumer. To ensure that consumers are not pestered into entering into credit agreements, the Act prohibits

the marketing and sale of credit at a consumer's home or place of employment. There are, however, certain

instances/exceptions, where credit can be legally marketed or sold at a consumer's home or work place:

If the credit provider is invited by the consumer to market or sell the credit at the consumer's home,

If the credit provider visits the consumer to sell goods or services, and in the process incidentally offers to

give or arrange credit to finance the goods or services that the credit provider is selling;

If the credit provider sells developmental credit he/she can do so at the consumer's home or place of

work without having been invited there by the consumer;

If the prospective consumer is an employer;

If the consumer has arranged with the credit provider to be visited at work for the purpose of marketing or

selling credit;

If the credit provider arranges with the employer as well as a representative of a trade union and/or

employee for the credit provider to market or sell credit at work (section 75).

RECKLESS CREDIT AND OVER-INDEBTEDNESS

A consumer is over-indebted when, according to available information, the consumer will be unable to satisfy in

a timely manner all the agreements to which the consumer is a party.

Credit is reckless when:

No assessment was made of the consumer‟s ability to pay;

The consumer did not understand his/her obligations;

The specific agreement caused the consumer to become over-indebted.

The Act requires credit providers to do an assessment before entering into any credit agreement. The consumer

must disclose information fully and truthfully at the time the agreement is made.

If reckless credit has been extended, a debt counselor may recommend that the debt be cancelled or

restructured.

A court may suspend or reduce obligations. A lender has no recourse against another lender who extends credit

recklessly, with the result that responsible lenders then suffer (section 78, 79, 80, 81, 82, 83).

DEBT COUNSELLING

If a consumer is in default of a credit agreement, the credit provider must advise the consumer in writing and

propose that the consumer refers the credit agreement to a debt counsellor. No legal proceeding may be

instated against a consumer before the proper counselling procedures have been observed.

The debt counsellor will assess whether the consumer is over-indebted or not, and if so, will propose a debt re-

arrangement.

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The debt counsellor cannot write off the debt. The full debt must be repaid, but according to terms agreed to by

all parties.

Once consent has been reached between the parties, a member of the Tribunal may confirm the order. If no

consent is reached, the matter must be taken to court. Until the debt is paid off the consumer may not take on

more debt.

CHAPTER 5 – CONSUMER CREDIT AGREEMENTS

UNLAWFUL AGREEMENTS

The Act declares the following credit agreements as unlawful:

Agreements where the consumer is a minor and was not assisted by a guardian at the time the

agreement was signed by the consumer. If the consumer misleads the credit provider into believing that

he/she is no longer a minor then the agreement will be enforceable;

Agreements entered into with a consumer who has been declared mentally unfit;

Agreements entered into with a consumer who is subject to an administration order where the

administrator did not consent to the agreement being entered into;

Agreements which are a result of negative option marketing;

Agreements where the credit provider is not registered with the NCR, despite being legally required to do

so. A registered credit provider is required to display a registration certificate as well as a decal issued by

the NCR. (Section 89)(regulation 32).

If a credit agreement is declared unlawful by a court, the credit provider cannot sue the consumer for any monies

owing under that agreement. The Act provides that the credit provider must refund the consumer any monies

paid, together with interest at the rate quoted in the agreement. Where it is found that the consumer will be

unfairly enriched if all the monies paid to the credit provider are refunded to him/her, such monies will be

forfeited by the credit provider to the State (section 89).

The Act does not allow certain provisions/clauses to be included in credit agreements. The prohibition of these

terms and conditions serves to protect the consumer against certain practices by credit providers. Among the

provisions/clauses that are prohibited are:

Provisions/clauses which mislead the consumer or subject the consumer to potential fraud;

Provisions/clauses which determine that the consumer has waived certain of his/her rights that may apply

to credit agreements. The rights that cannot be waived include a consumer's right to have their debt

restructured, the right to have repossessed goods sold at a fair, market-related price, and the right to

dispute any debits that pass through a consumer's account;

Provisions/clauses which require the consumer to acknowledge that he/she has received goods or any

information from the credit provider, before the goods or information have actually been received by the

consumer;

Provisions/clauses which require the consumer to agree to forfeit monies paid to the credit provider in the

event of the consumer terminating the agreement;

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Provisions/clauses which require the consumer to leave items such as identity document, bank cards or

PIN numbers of bank cards with the credit provider;

Provisions/clauses that authorise the credit provider to set-off a consumer's debt against an asset or

account of the consumer held by the credit provider, except where the consumer has given the credit

provider specific instructions specifying which assets may be set-off against which credit agreement.

The following common law rights or remedies that are available to the consumer may not be waived in a credit

agreement:

Exceptio errore calculi refers to a defence based on an error in calculation;

Exceptio non numerate pecuniae refers to a defence by a party who was sued on a promise to repay

money that was never received;

Exceptio non causa debiti refers to a defence that the debt claimed has no basis or ground.

The exceptions referred to above have the effect that the credit provider need not prove the substance of the

relevant exceptions in detail when a credit agreement is being enforced (section 90 & 121) (regulation 32).

A consumer cannot be sued or forced to comply with a provision in a credit agreement which is found to be

unlawful. Unlawful provisions affect credit agreements in two ways:

An unlawful provision may cause the entire credit agreement to be unlawful and the consumer cannot be

forced to pay the credit provider under that agreement, or

An unlawful provision can be amended by the court or deleted to ensure the agreement remains lawful in

which case the consumer will still be bound by the credit agreement and the amended provision.(Section

90).

PRE-AGREEMENT STATEMENTS AND QUOTES

The NCA requires that a consumer must be given a pre-agreement statement and a quotation before entering

into a credit agreement with a credit provider. A pre-agreement statement is a document which details the terms

and conditions of the credit agreement that the credit provider intends entering into with the consumer. In

addition, the consumer must be given a quotation disclosing the costs of the credit required.

This quotation must include the principal debt, the interest rate, the total amount payable under the agreement,

the instalments and all fees, charges and interest. The pre-agreement statement and the quotation can either be

written in one document or in separate documents. The quotation that the consumer receives is valid for five

business days. If the credit provider enters into the credit agreement with the consumer within these five days,

he/she is obliged to do so at the same rate or costs as noted in the quotation. (Sections 92 and 93).

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COST OF CREDIT

Interest and initiation fees

The NCA regulates interest rates and initiation fees by specifying maximum rates and fees that credit providers

may charge consumers for various credit agreements:

Type of credit agreement Maximum interest rate Maximum initiation fee

Mortgages / Bonds (REPO rate x 2.2) + 5% R1 000 + 10% of any amount

greater than R10 000

(Maximum fee R5 000)

Credit facilities (e.g. credit cards,

store cards, etc.)

(REPO rate x 2.2) + 10% R150 + 10% of any amount greater

than R1 000

(Maximum fee R1 000)

Unsecured credit facilities (e.g.

personal loans)

(REPO rate x 2.2) + 20% R150 + 10% of any amount greater

than R1 000

(Maximum fee R1 000)

Credit facilities (e.g. credit cards,

store cards, etc.)

(REPO rate x 2.2) + 5% R1 000 + 10% of any amount

greater than R10 000

(Maximum fee R5 000)

Incidental credit agreements (e.g.

overdue bills from doctors, Eskom,

etc.)

2% per month N/A

Small & Medium Business Loans (REPO rate x 2.2) + 20% R250 + 10% of any amount greater

than R1 000

(Maximum fee R2 500)

Low income housing loans (REPO rate x 2.2) + 5% R500 + 10% of any amount greater

than R10 000

(Maximum fee R5 000)

Short term loans (i.e. loans of up to

6 months of no more than R8 000)

5% per month R150 + 10% of any amount greater

than R1 000

(Maximum fee R1 000)

Any other type of loans not covered

above

(REPO rate x 2.2) + 10% R150 + 10% of any amount greater

than R1 000

(Maximum fee R1 000)

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Service Fees

A service fee is a fee that a credit provider charges a consumer for servicing a credit agreement between them.

The fee is for administering or maintaining the credit agreement. The credit provider can charge this fee on a

monthly or annual basis. It can also be charged per transaction. The NCA regulates service fees in a number of

ways including by specifying the maximum fees that credit providers are allowed to charge and how often the

fees can be recovered. The current maximum service fee that a credit provider can charge a consumer is R50 a

month. If the consumer pays an annual service fee, the maximum that the consumer can be charged is R600 per

year. If the credit agreement is settled sooner than originally agreed by the consumer and within the year to

which the annual service fee relates, the credit provider must refund the unused portion of the service fee to the

consumer (section 101)(regulation 44).

Credit insurance

The NCA also regulates credit insurance. This is insurance which can be required by a credit provider when a

consumer takes up a specific product such as a home loan or credit card. The insurance would then cover the

debt due to the credit provider in certain cases such as the death of the consumer.

The NCA stipulates that the insurance cover taken by the consumer may not exceed the outstanding obligation

to the credit provider and the cover must reduce as the outstanding balance due the credit provider reduces. In

the case of a home loan, the insurance may not exceed the value of the property.

In certain instances a consumer may be offered “optional” insurance which will be to the benefit of the consumer.

For example in the case of vehicle financing, it might be in the consumer's best interest to ensure that the full

market value of the vehicle is covered and not only the balance due to the credit provider, failing which in the

case of the vehicle being written off, only the outstanding balance to the credit provider will be covered and the

consumer will receive nothing for the value of the vehicle.

The Act provides that the consumer may not be forced to take the insurance offered by the credit provider and

can in fact select to replace the insurance offered by the credit provider with a policy of the consumer's choice.

When the consumer chooses to use his/her own insurance, the credit provider can request that the premiums

are paid by the credit provider to the insurance company and that the consumer is billed monthly.

All insurance premiums payable to the credit provider must be by way of monthly premiums except in the case of

a large agreement where an annual premium may be recovered. The annual premium has to be recovered at

the beginning of the twelve month period that the agreement will be in place. In the event that the large

agreement is settled early, the consumer must be refunded premiums equal to the number of the remaining

months (sections 101 & 106).

Default administration charges

This is a charge that a credit provider may charge a consumer who is in arrears with repayments on his/her

credit agreement. These charges relate to costs that the credit provider has incurred in attempting to advise the

consumer that he/she is in arrears with his/her account. These costs are limited to a letter sent by the credit

provider to the consumer, informing him/her that he/she is in default in terms of the agreement. These default

administration charges do not include any telephone calls made to the consumer. The Act specifies that a credit

provider may not charge a consumer more than the cost actually incurred by the credit provider. The Act

specifies that the charge for the letter must be equal to the tariff allowed by the court, plus the actual costs

incurred for sending the registered letter.

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Collection costs

Collection costs are costs that the credit provider incurs when attempting to collect an outstanding, overdue debt

from the consumer. The Act specifies that a credit provider is not allowed to charge a consumer collection costs

which are more than the court tariff allows.

THE RIGHT TO RECEIVE PERIODIC STATEMENTS

The Act stipulates that a credit provider must provide a consumer with a statement once a month or once every

two months if the agreement is an instalment sale agreement, lease or secured loan. A longer interval may be

allowed with the consent of the consumer. This interval may, however, not exceed three months.

With regards to a mortgage agreement the consumer is entitled to receive a statement every six months.

(Section 108).

CHANGES TO CREDIT AGREEMENTS AND INCREASES/DECREASES OF CREDIT LIMITS

The NCA states that any change that is made to a credit agreement, which a consumer has already signed will

have no effect, unless

The change reduces the consumer's debt under the agreement; or

The consumer signs his/her initials in the margins next to the change made; or

The change is recorded in writing and signed by both the consumer and the credit provider; or

If the change is agreed upon orally it must be recorded and thereafter provided in writing.

In terms of the NCA, a consumer is entitled to instruct a credit provider, in writing, to reduce his/her credit limit

under a credit facility. The credit provider must confirm with the consumer that the limit was reduced in

accordance with the consumer's request and must indicate the date when the reduced limit becomes effective.

A consumer is allowed to request a credit provider to increase his/her credit limit under a credit facility either

temporarily or permanently. A consumer has to agree, in writing, to an automatic limit increase to his/her credit

facility, but even where the credit provider obtains such agreement from the consumer, the limit may only

increase once a year. However, a consumer may at anytime request an increase of the credit limit (sections 116

-119).

TERMINATION OF CREDIT AGREEMENTS

The Act specifies that a consumer can at any time terminate a credit agreement by paying the settlement

amount. A settlement amount is the amount that is arrived at by adding the following amounts:

The outstanding principal debt as at the date of termination;

The outstanding interest on the principal debt as at the date of termination;

Any outstanding fees and charges as at the date of termination;

An early termination charge in the case of large agreements as explained below.

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No penalty fee is payable for the early settlement of a small or intermediate agreement. If the consumer wants to

terminate a large credit agreement i.e. a credit agreement which is greater than R250 000, or a mortgage

agreement, the settlement amount may include an early settlement charge which is not allowed to be more than

three months interest, and less if the consumer provides notice of his/her intention to settle early. In the case of

a notice given by the consumer it will reduce the three month interest early settlement charge by the notice

period.

The Act allows the credit provider to terminate a credit agreement early if the consumer is in default. (Section

122- 123).

CHAPTER 6 – COLLECTION, REPAYMENT, SURRENDER AND DEBT

ENFORCEMENT

EARLY PAYMENTS AND CREDITING OF PAYMENTS

A consumer can pay an instalment owing under a credit agreement in advance. The credit provider may not

refuse to accept an advance payment from a consumer or penalise the consumer for paying in advance.

When a consumer makes payments that are not yet due to the credit provider, the Act stipulates that the credit

provider has to distribute the payments in the following sequence:

Firstly, to pay the interest due in terms of the credit agreement;

Secondly, to pay any fees and charges that are due;

Thirdly, to reduce the principal debt. (Section 126).

THE CONSUMER'S RIGHT TO SETTLE THE AGREEMENT EARLY

The NCA also gives the consumer the right to settle an agreement at any time before the date specified in the

agreement. The consumer is not obligated to give the credit provider notice that he/she intends to settle the

credit agreement early.

In the case of a large agreement, when a consumer exercises this right, he/she will be charged an early

settlement amount, as noted above. This right is also available to a guarantor. A guarantor is a person who

agrees to pay a debt, which is due to a credit provider by another consumer should the consumer fail to pay the

credit provider (section 125).

SURRENDER OR RETURN OF GOODS

The Act specifies that a consumer can withdraw from an instalment sale, secured loan or lease agreement at

any time by returning the goods to the credit provider. When the consumer returns the goods to the credit

provider, the credit provider is expected to sell them and credit the consumer's account with the proceeds of the

sale. If the proceeds from the sale are more than the consumer's debt, the credit provider must refund any

surplus to the consumer. If the proceeds are less than the consumer's debt, the consumer is obliged to pay the

outstanding amount the credit provider within ten days (section 127).

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COLLECTION AND DEBT ENFORCEMENT

When a consumer is unable to pay, the credit provider will take steps to collect monies that are due to him/her.

This is called debt enforcement. The Act prohibits certain practices that credit providers may use to collect

overdue monies from consumers. A credit provider is not allowed to retain the following documents for purposes

of collection and debt enforcement:

An identity document;

A debit or credit card;

An ATM card;

A PIN number (sections 90 & 133).

When a consumer has defaulted, the credit provider must first notify the consumer in writing of the status of the

account. The consumer is in default if his/her account is twenty business days in arrears. In the notice the credit

provider must propose that the consumer refer the credit agreement to a debt counsellor or a consumer court or

an Ombudsman with the authority to handle any possible disputes. The purpose of such a referral is to enable

the consumer and the credit provider to resolve the matter or agree to a plan to bring the repayments up to date.

A credit provider cannot take legal action against a consumer before first notifying the consumer of the default

and to draw his/her attention to his/her rights in this regard. Should the consumer fail to approach the credit

provider or an Ombudsman within ten days to resolve the matter, the credit provider can take further steps to

enforce the debt.

A credit provider can approach the Magistrates' Court to enforce a credit agreement, which is in arrears when

the following has happened:

The consumer did not respond to the written notice from the credit provider to bring repayments under a

credit agreement up to date;

The consumer refused to agree to a proposal made by the credit provider in the written notice,

suggesting ways in which to resolve any dispute or to bring repayments up to date; or

The consumer did not approach a debt counsellor within the allowed ten business days.

A consumer can terminate a credit agreement by returning the goods to the credit provider. The credit provider

will have to sell the goods. The consumer will have to pay for any shortfall should the goods be sold at a price

less than the outstanding balance. The Act specifies that the credit provider may approach the court to recover

the shortfall if not paid within ten business days.

The court will only consider the credit provider's request for a judgment if the credit agreement is not subject to

debt review. Where a consumer and a credit provider have agreed on a plan to bring repayments up to date on

an agreement that is in arrears, and the consumer has adhered to this arrangement the credit provider cannot

approach the court for a judgement on this agreement.

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COMPLIANCE AND REPORTING – CHAPTER 8 OF THE REGULATIONS

STATUTORY REPORTING

A credit provider must submit the following to the NCR:

Compliance report;

Statistical returns;

Annual financial and operational returns;

Assurance report.

If requested by the NCR, any analysis of any item contained in the forms prescribed must be furnished to the

NCR within 20 business days after such request.

COMPLIANCE REPORT

A credit provider must complete and submit a compliance report to the NCR on an annual basis within six

months after the financial year end of the credit provider.

STATISTICAL RETURNS

A credit provider whose annual disbursements exceed R15 000 000 must complete and submit the statistical

return to the NCR in respect of the quarters and by the dates set out below:

Quarter 1 15 May

Quarter 2 15 August

Quarter 3 15 November

Quarter 4 15 February

All other credit providers must complete and submit the statistical return by the 15th of February each year for the

period 1 January to 31 December.

ANNUAL FINANCIAL STATEMENTS

A credit provider must submit its annual financial statements including the auditor or accounting officer‟s report

to the NCR within six months after the provider‟s financial year- end.

ANNUAL FINANCIAL AND OPERATIONAL RETURN

A credit provider must submit an annual financial and operational return to the NCR, within six months after the

credit provider‟s year-end.

RESPONSIBILITY FOR ASSURANCE ENGAGEMENT

A credit provider must require an accounting officer or auditor to conduct an assurance engagement and issue a

report to the NCR on the basis of that person‟s finding with regard to that engagement.

A credit provider must submit the report to the NCR within six months after the credit provider‟s year-end.

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DEBT COUNSELLING

If a Debt Counsellor is of the view that a consumer is over-indebted he can propose a restructuring to all credit

providers of the consumer. However, should any of the credit providers refuse to consent to such a restructuring,

the debt counsellor will have to make one or more of the following recommendations to the Magistrates‟ Court,

concerning the obligations of the consumer:

That the period of the consumer agreement should be extended and the monthly payments be reduced;

That certain payments be postponed;

The recalculation of the consumer‟s obligations in cases of the charging of unlawful fees;

Suspension of obligations under any reckless agreement.

There are four points of entry for a consumer to enter the debt review process, namely:

A referral by court;

A referral by the National Credit Regulator;

A referral by a credit provider; or

A voluntary application by a consumer;

Section 129 of the Act prescribes if a consumer is in default of payment, the credit provider can bring the

default to the attention of the consumer and advise him/her that he/she can refer the matter to a debt

counsellor.

A credit provider is allowed to proceed with legal action if:

The consumer fails to respond to the notice of the creditor; or

The consumer refuses the advice of the creditor and does not refer the matter to a debt counsellor.

All credit agreements are subject to the debt review process. The only exception is if the credit provider has

proceeded with legal action against the consumer in terms of section 129 of the Act.

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CONSUMER PROTECTION ACT

PURPOSE OF THE ACT

The primary purpose of the Act is to protect consumers against exploitation and unfair practices by unscrupulous

businesses, and to empower consumers to make wise purchasing decisions. The Preamble to the Act briefly

summarises the ambit of the Act to have the following desired results:

To promote a fair, accessible and sustainable marketplace for consumer products and services by setting

national norms and standards relating to consumer protection.

To provide for the improved standards of consumer information.

To prohibit certain unfair marketing and business practices.

To promote responsible consumer behaviour.

To harmonise laws relating to consumer protection.

To provide a consistent enforcement framework.

To establish a National Consumer Commission.

APPLICATION OF THE ACT

The Act applies to every transaction involving the supply of goods and/or services in the ordinary course of

business within the Republic of South Africa, to the promotion of such goods and services that could lead to

such transactions and to the goods and services themselves after the transaction is completed.

The following arrangements are also regarded as transactions between the supplier and consumer:

Memberships of associations for example a club membership; and

Any franchise arrangement between the franchisor and a franchisee (regardless of whether the

franchisee is above or below the threshold). The Act will apply to the relationship in all respects for the

protection of the franchisee.

In addition, the Act extends to a transaction irrespective of whether the supplier:

Resides or has its principal office within or outside the Republic;

Operates on a "for profit" basis or otherwise;

Is an individual, juristic person, partnership, trust, organ of state, an entity owned or directed by an organ

of state, a person contracted or licensed by an organ of state to offer or supply any goods or services, or

is a public–private partnership; or

Is required or licensed in terms of any public regulation to make the supply of the particular goods or

services available to all or part of the Republic.

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Meaning of transaction and consumer

The following are the elements of a consumer transaction:

It is an interaction or agreement to interact between a consumer and supplier in the ordinary course of

the supplier‟s business, including in terms of any public regulation;

There is an exchange of consideration; or

The interaction concerns the supply or potential supply of goods or services to or at the direction of the

consumer.

The definition of a consumer is extended to the actual users of goods or services, regardless of who actually

may have conducted a transaction or paid for the goods or services.

A consumer means:

A person to whom goods or services are marketed in the ordinary course of business;

A person who has entered into an agreement or transaction with a supplier;

A user of the goods or a recipient or beneficiary of the services; or

A franchisee in terms of a franchise agreement.

Goods:

Anything marketed for human consumption;

Any tangible or intangible product (e.g. music, photograph, literature, information, software code,

licenses);

Legal interest in land or any other immovable property (this would include usufructs / bare dominiums);

and

Gas, water and electricity services.

Services:

Any work or undertaking performed by one person for the direct or indirect benefit of another;

The provision of any education, information, advice or consultation (excluding FAIS);

Any banking services or related financial services;

The transportation of any individual or any goods;

The provision of any accommodation (e.g. restaurants and hotels);

The provision of any entertainment or similar intangible products (e.g. sale of tickets to a concert);

The provision or access to any electronic communications infrastructure (e.g. cell phones, 3G, hotspots);

The provision of access to an event;

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The provision of access to any premises, activity or facility;

The provision of access to any premises or other property in terms of a lease;

The provision of a right of occupancy in connection with land or other immovable property; and

The rights of a franchisee in terms of a Franchise Agreement.

Supplier / service provider

Any person including a juristic person who markets, promotes or supplies goods or services, is a supplier, as

well as any person who promotes, supplies or offers to supply any service.

EXEMPTIONS

The following transactions are exempted from the provisions of the Act:

Transactions where goods or services are promoted to the State or are supplied to or at the direction of

the State;

Transactions where the consumer is a juristic person whose asset value or annual turnover at the time

the transaction is entered into, equals to or exceeds R2 million;

A transaction which constitutes a credit agreement for the purposes of the National Credit Act 34 of 2005.

(The goods and services that are the subject of the agreement will remain subject to the provisions of the

Act);

Transactions pertaining to services to be supplied under an employment contract;

Transactions which give effect to a collective bargaining agreement within the meaning of section 23 of

the Constitution, or the Labour Relations Act 66 of 1995 (LRA), or those transactions giving effect to a

collective agreement as defined in the LRA;

Transactions that fall within an industry wide environment:

○ Regulators apply for an industry wide exemption for example where the service constitutes advice

that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act 37 of

2003 FAIS) or insurers subject to the Short-Term Insurance Act 53 of 1998 or the Long-Term

Insurance Act 52 of 1998.

FUNDAMENTAL CONSUMER RIGHTS

RIGHT OF EQUALITY IN THE CONSUMER MARKET

Discriminatory marketing is when a supplier unfairly excludes a consumer from accessing goods or services

despite the fact that the consumer meets the necessary basic requirements.

The Act protects consumers against a range of discriminatory marketing practices. It also specifies when a

consumer can fairly be excluded from receiving a product or service. (A child may not be sold alcohol or view an

age-restricted movie).

Discriminatory marketing also applies if the supplier grants exclusive access, a different quality or price of goods

or services to a particular person, community or market segment.

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A consumer that has been discriminated against can:

Institute proceedings before an equality court;

File a complaint with the Commission, which must refer the complaint to the equality court if the complaint

is valid.

RIGHT TO RESTRICT UNWANTED DIRECT MARKETING

Definition of direct marketing

Direct marketing is to approach a person either in person, by mail or by electronic communication (for example,

using telephone, fax, SMS or email) for the direct or indirect purpose of promoting or offering to supply, in the

ordinary course of business, any goods or services, or requesting the person to make a donation of any kind.

The consumer's right to restrict unwanted direct marketing

Every person has the right to require a marketer to discontinue any approach or communication that is primarily

for the purpose of direct marketing. This is done by demanding during the communication, or within a reasonable

time afterwards, that the marketer stop initiating communication.

Where the approach is not in person, the consumer will have the option to register a "pre-emptive block" on a

registry to be set up. This block can be applicable to all direct marketing or only for specific purposes.

The Act requires a person who authorises, directs or conducts any direct marketing to implement appropriate

procedures to facilitate the receipt of a demand to the effect that direct marketing to a consumer be

discontinued.

Such a person must not deliver any communication for the purpose of direct marketing to a consumer who has

made such a demand or registered a relevant pre-emptive block.

Consumers may not be charged a fee for making a demand or registering a pre-emptive block.

Prohibited time period for contacting consumers

No direct marketing during the prohibited periods will be allowed if the direct marketing is:

Directed to a consumer at home; and

For any promotional purpose except to the extent that the consumer has expressly or implicitly requested

or agreed otherwise.

Identification

Whenever a person is engaged in direct marketing, in person, at the premises of a consumer, that person must:

Visibly wear or display a badge or similar identification device that satisfies any prescribed standards; or

Provide suitable identification on request by the consumer.

CONSUMER’S RIGHT TO CHOOSE

In order to enhance consumer choice the Act introduces a number of provisions that are aimed at assisting

consumers to select goods or services on the basis of having examined the goods and compared prices.

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Consumer’s right to select suppliers

Suppliers are prohibited from requiring consumers to purchase bundled goods or services unless it can be

proven that the bundling results in economic benefit for consumers.

Expiry and renewal of fixed-term agreements

The Act provides that where a fixed term arrangement is contemplated:

The supplier may not require the conclusion of the agreement for a period longer than the maximum period

prescribed for that particular consumer agreement. The maximum period of a fixed-term consumer agreement is

24 months from the date of signature by the consumer:

The supplier must allow the consumer to:

○ Cancel the agreement upon the expiry of its fixed term, without penalty or charge; or

○ Cancel the agreement at any other time by giving the supplier 20 business days notice in writing;

or

○ Rectify any material failure to comply with the agreement on 20 business days written notice prior

to cancellation thereof by the supplier.

Where a fixed term agreement exists the supplier is required, not more than 80 nor less than 40 business

days before the expiry date of the fixed term of the consumer agreement, to notify the consumer in writing

or other recordable form of the impending expiry, including notice of any material changes if the

agreement is to be renewed or continued beyond the expiry date, and the options available to the

consumer;

The Act allows the consumer the option of expressly directing the supplier to terminate the agreement on

the expiry date, or agreeing to renew the agreement for a further fixed term;

Should the consumer refrain from electing any of those options, the Act provides that on expiry of the

fixed term of the consumer agreement, it will automatically continue on a month to month basis, subject

to any material changes of which notice has been given by the supplier to the consumer;

Unless the consumer terminates the agreement or agrees to renewal for a further fixed term, a fixed term

agreement will continue on a month to month basis indefinitely.

The consumer‟s rights on expiry and renewal of fixed term agreements excludes all transactions between juristic

persons (in other words, entities other than individuals like companies, trusts, close corporations, partnerships

etc.), regardless of thresholds set by the Act.

Franchise agreements are also exempt from these provisions.

Pre-authorisation of repair or maintenance services

This right will only apply to:

A transaction or agreement;

Where the price value is above an amount that will be prescribed;

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Where the service provider supplies a repair or maintenance service to property belonging to or in the

control of the consumer or supplies or installs any replacement parts or components; and

The service provider has possession, or takes possession, of that property to repair or for maintenance.

A service provider may only charge a consumer, for the supply of any goods or services if the consumer:

Received an estimate and then authorised the work;

In writing or other recorded form declined the offer of an estimate and authorised the work; or

In writing or other recorded form pre-authorised any charges up to a specified maximum, and the amount

charged does not exceed that maximum.

A service provider may only charge for preparing an estimate if the price for preparing that estimate was

disclosed before-hand and the consumer accepted the estimated cost.

Charges for preparing an estimate would include:

Diagnostic work, disassembly or re-assembly required to prepare an estimate; and

Damage to or loss of material or parts in the course of preparing an estimate.

Authorisation is needed for costs that exceed the estimate

A price for goods and services may only exceed an estimate provided to the consumer if the consumer has:

Been informed of the additional estimated charges (preferably in writing); and

Authorised the work to continue.

This right will not apply to pre-existing agreements.

Consumer’s right to cooling-off period after direct marketing

Consumers who are approached by direct marketers often feel psychologically pressured to agree to a

transaction.

The consumer has the right to cancel such an agreement without penalty during a brief „„cooling-off period‟‟ of

five business days (i.e. one calendar week).

Consumer’s right to cancel advance reservations, bookings or orders

A consumer may cancel any advance booking, reservation or order for any goods or services to be supplied.

A supplier who makes a commitment or accepts a reservation to supply goods or services on a later date may

require payment of a reasonable deposit in advance and a reasonable charge for cancellation of the order or

reservation.

The charge must not exceed a fair amount in the circumstances, having regard to:

The nature of the goods or services that were reserved or booked;

The length of notice of cancellation provided by the consumer;

The reasonable potential for the service provider, acting diligently, to find an alternative consumer

between the time of receiving the cancellation notice and the time of the canceled reservation; and

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The general practice of the relevant industry.

No cancellation fee may be charged if the consumer is unable to honour the booking, reservation or order due to

the death or hospitalisation of the person for whom it was made, or for whose benefit it was made.

Consumer’s right to choose or examine goods

Loss or damage to displayed goods

A consumer will only be responsible for any loss or damage to goods displayed by a supplier, if the loss

or damage results from action by the consumer amounting to gross negligence or recklessness,

malicious behaviour or criminal conduct.

Choosing from open stock

A consumer may select or reject any particular item from goods displayed in open stock, or sold from

open stock, before completing the transaction.

Delivered goods must correspond with sample or described goods

A supply of goods made by sample and description must correspond with the sample and the description.

Limitation of right

This right will not apply to the supply of goods or services to a franchisee in terms of a franchise

agreement.

Implied delivery conditions

It is an implied condition of every transaction for the supply of goods or services that the supplier must

deliver the goods or perform the services:

○ On the agreed date and at the agreed time, or otherwise within a reasonable time after concluding

the transaction or agreement;

○ At the place of business of the supplier or else residence of the supplier (if the supplier does not

have a place of business);

○ At the cost of the supplier, in the case of delivery of goods; and

○ At the risk of the supplier (until the consumer has accepted delivery of the goods).

Acceptance of delivery

A supplier may not require a consumer to accept delivery or performance of services at an unreasonable

time, if an agreement does not provide a specific date or time.

Examination of goods

A supplier must, when tendering delivery of any goods, on request, allow the consumer a reasonable

opportunity to examine those goods to determine whether the consumer is satisfied that the goods are:

○ Of a type and quality reasonably contemplated in the agreement;

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○ In all material respects and characteristics correspond to that which an ordinary alert consumer

would have expected based on the description or on a reasonable examination of the sample, if

the consumer agreed to purchase goods solely on the basis of a description and/or sample; and

○ Corresponding with the sample and description if the supply of goods is by sample as well as

description.

Delivery at a different time or date then agreed

If the supplier tenders the delivery of goods or the performance of any services at a location, on a date or

at a time other than as agreed with the consumer, the consumer may either:

○ Accept the delivery or performance at that location, date and time;

○ Require the delivery or performance at the agreed location, date and time, if that date and time

have not yet passed; or

○ Cancel the agreement without penalty, treating any delivered goods or performed services as

unsolicited goods or services.

Right to reject incorrectly delivered goods or treat them as unsolicited goods

A consumer that receives delivery of a larger quantity of goods, than the consumer agreed to buy, may:

○ Reject all of the delivered goods; or

○ Accept delivery of the goods, pay for the agreed quantity at the agreed rate and treat the excess

quantity as unsolicited goods.

RIGHT TO DISCLOSURE AND INFORMATION

Right to information in plain and understandable language

A notice, document or visual representation is in plain language if it is reasonable to conclude that an ordinary

consumer of the class or persons for whom the notice, document or visual representation is intended, with

average literacy skills and minimal experience as a consumer of the relevant goods or services, could be

expected to understand the content, significance, and import of the notice, document or visual representation

without undue effort, having regard to:

The context, comprehensiveness and consistency of the notice, document or visual representation;

The organisation, form and style of the notice, document or visual representation;

The vocabulary, usage and sentence structure of the notice, document or visual representation; and

The use of any illustrations, examples, headings, or other aids to reading and understanding.

Disclosure of price of goods or services

The right to disclosure aims to ensure that consumers understand the terms and conditions of the transactions

or agreements they enter into and are able to make informed choices about the products and services they

consume. The Act seeks to advance that right with the following provisions:

It is compulsory to display prices for any goods that are displayed for sale;

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If two prices are displayed for the same goods, the lowest has to be charged;

If an advertisement or notice states that prices are subject to a reduction or sale price, clause 23(11)

provides for a consistent application of such notices, so that consumers can better compare the price in a

consistent fashion.

Product labeling and trade descriptions

Trade descriptions applied to any goods must not be misleading, and must not be tampered with. The Minister

may prescribe categories of goods to which a trade description must be applied.

Disclosure of reconditioned or grey market goods

If goods are reconditioned, that has to be disclosed, and if they have been imported without the benefit of the

manufacturer‟s warranty (so called „„grey market goods‟‟), that fact must be disclosed.

Sales records

Clause 26 makes it compulsory for sales records of every transaction to be provided to the consumer. The

record must include the following information:

The supplier‟s full name, or registered business name, and VAT registration number;

The address of the premises at which, or from which, the goods or services were supplied;

The date on which the transaction occurred;

The name or description of any goods or services;

The unit price;

The quantity;

The total price of the transaction before any applicable taxes;

The amount of any applicable taxes;

Total price of the transaction after including any applicable taxes.

Disclosure by intermediaries

Clause 27 sets out disclosure requirements that intermediaries who are not regulated under another law have to

comply with. This includes commissions earned, and entities that they represent. The Minister may prescribe the

information or records that intermediaries or categories of intermediaries must keep.

Identification of deliverers, installers and others

Persons who attend at a consumer‟s place of business or residence to deliver or install any goods, or perform

any services, must wear satisfactory identification.

RIGHT TO FAIR AND RESPONSIBLE MARKETING

General standards for marketing of goods or services

The Act sets out standards for fair and responsible marketing and provides a general prohibition against

marketing that is misleading, fraudulent or deceptive.

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Bait marketing, Negative option marketing, Referral selling

A number of specific marketing and selling practices are prohibited:

Bait marketing – where non-existent special offers lure customers into the shop.

Negative options – where customers have to ask NOT to be sold something.

Referral selling – when customers are encouraged to buy products or services based on potential future

rebates or commissions.

Direct marketing

Clause 32 outlines standards to be adhered to when suppliers engage in direct marketing. Consumers have to

be informed and provided with the identity of the agent(s) or person(s) and informed of their right to rescind the

agreement during the cooling-off period.

Catalogue marketing, Trade coupons, Work from home schemes

Clause 33 establishes standards for the conduct of catalogue sales, clause 34 regulates the use of trade

coupons, and clause 37 regulates the marketing of work from home schemes.

Customer loyalty programs

The Act regulates loyalty programs by requiring sponsors of loyalty programs to meet their obligations when

loyalty credits are tendered, prohibits offering inferior quality products or requiring the bundling of „„reward‟‟

goods or services with „„revenue‟‟ products, requires a supplier to accept the tender of sufficient loyalty credits

as adequate consideration for goods and services at any time, subject to limited black-out periods.

If the sponsor of a loyalty program keeps a register of members, the sponsor may increase the price of

„„rewards‟‟ only after notifying the members.

Promotional competitions

Clause 36 prohibits offering prizes with the intention of not providing them.

It also prohibits informing consumers that they have won a prize when no competition has been conducted, or

they have never entered a competition, or making the prize subject to a previously undisclosed condition

payment of any consideration, whether for participating in the competition or for the prize itself.

RIGHT TO HONEST AND FAIR DEALING

Unconscionable conduct

Unconscionable conduct, force, coercion, undue influence, pressure or harassment, unfair tactics or conduct is

prohibited in connection with any marketing, supply, negotiation, collection or recovery of goods from

consumers.

False, misleading or deceptive representations

A supplier or a person acting on his or her behalf is prohibited from making false, misleading or deceptive

representations in respect of any goods and services under the circumstances listed in clause 41.

Consumer’s right to assume that the supplier is entitled to sell goods

The consumer has the right to assume, and it is an implied term of every transaction, that the supplier or lessor

has legal right to sell or lease the goods for full title of the goods to pass to the consumer.

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If a third party has a legal claim over the goods, the supplier is liable to that third party, unless it can be shown

that the supplier and consumer colluded to defraud the third party.

This does not apply to used goods or immovable property.

Auctions

New provisions in clause 45 aim to ensure fairness in auctions by regulating the participation of owners or their

agents as bidders, and requiring notice of any reserve bid or upset price.

Over-selling and over-booking

There is a prohibition against overselling and overbooking, which requires a supplier not to accept consideration

for any goods or services unless they reasonably expect to have capacity to supply them or intend to provide

goods or services that are materially different.

Consumers have to be refunded in full with interest and consumers can also claim contractual and consequential

damages, including economic losses.

RIGHT TO FAIR, JUST AND REASONABLE TERMS AND CONDITIONS

Unfair, unreasonable or unjust contract terms

A supplier must not offer to supply, or enter into an agreement to supply or market, any goods or services at a

price or terms that are unfair, unreasonable or unjust.

A supplier may not require a consumer to waive any rights, assume any obligation or waive any liability on terms

that are unfair, unreasonable or unjust.

Notice required for certain terms and conditions

Any notice to consumers or a provision in an agreement that purports to:

Limit the risk or liability of the supplier;

Constitute an assumption of risk or liability by the consumer;

Impose an obligation on the consumer to indemnify the supplier for any cause; or

Be an acknowledgement of any fact by the consumer;

must be written in plain language.

RIGHT TO FAIR VALUE, GOOD QUALITY AND SAFETY

Consumer’s rights to safe, good quality goods

The Act provides for a general right for consumers to receive goods that are of good quality and free from

defects.

An exception is allowed where the consumer has been expressly informed of the condition of the goods and has

expressly agreed to buy them in that particular state.

It provides that consumers have a right to receive goods that are reasonably suitable for the purpose for which

they are intended, of good quality, in good working order, free of defects, and useable and durable for a

reasonable period of time.

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If the consumer had informed the supplier of the use he/she wants to put the goods to, the consumer has the

right to expect that it will be suitable for that particular purpose.

Implied warranty of quality

There is an implied warranty of quality (six months on repair, replace or refund requirement, and a further three

month replacement or refund requirement after repair), which is additional to any other implied or expressed

warranty provided.

Warning concerning the fact and nature of risks

There is an obligation on the supplier to issue alerts of any activity or facility that is subject to any hazard that

could result in serious injury or death to consumers; notice or instructions of safe handling of goods; notice on

how to inhibit any risk associated with the use of goods, and to remedy or mitigate the effects, and provide for

the safe disposal of the goods.

Safe disposal of goods

Suppliers are obligated to accept the return of waste goods that may not be accepted in the common waste

collection system.

Safety monitoring and recall

Clause 60 creates a framework for industry codes to be developed, establishing schemes of product safety

monitoring and, if needed, product recall.

The Commission would have authority to order an investigation and recall of any dangerous or defective

products covered by any such industry code.

Liability for damage caused by goods

The producer or importer, distributor or retailer of any goods is liable for any harm caused wholly or partly as a

consequence of the following:

Supplying any unsafe goods, a product failure, defect or hazard in any goods; or

Inadequate instructions or warnings provided to a consumer pertaining to any hazard arising from or

associated with the use of any goods - irrespective of whether the harm resulted from any negligence on

the part of the producer, importer, distributer or retailer.

Even if a transaction is exempt from the Act, the strict liability provision applies to the goods themselves.

SUPPLIER’S ACCOUNTABILITY TO CONSUMERS

Lay-bys

In respect of lay-bys the Act provides that suppliers are accountable for amounts paid by consumers for lay-bys,

and that the goods remain at the risk of the supplier.

The Act further requires the supplier to compensate the consumer if the supplier is unable to produce the goods

once the full price has been paid by the consumer.

Prepaid certificates, credits and vouchers

The Act provides that prepaid certificates, credits and vouchers remain negotiable for up to five years, and that

the supplier is obligated to honour them when presented.

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The minimum period is three years.

During this time, until redeemed, it will be shown as prepaid income.

PROTECTION OF CONSUMER RIGHTS AND THE CONSUMER VOICE

RIGHT TO BE HEARD AND OBTAIN REDRESS

The Act aims to make redress accessible, and to protect consumers from being victimised if they act to enforce

their rights.

Clause 69 outlines the available avenues of redress, including the courts, alternative dispute resolution, and

complaint to the Commission.

If a complaint arises in an industry in which a statutory ombud scheme is in place, the consumer must pursue a

resolution through that scheme before making a complaint to the Commission.

An ombud, consumer court or provincial authority that has resolved a complaint may record the agreement as an

order, which must then be confirmed as a consent order by the courts.

If a complaint is made to the Commission, it will investigate, and may make a referral to the Tribunal, which may

resolve the matter by making certain orders as contemplated in clause 75.

In addition to their jurisdiction to hear a matter initiated directly by a consumer, the courts have jurisdiction to

hear appeals against Tribunal decisions, and may order suppliers to alter or discontinue certain practices, award

damages against suppliers for collective injury to all or a class of consumers, to be paid to any person on any

terms that the court might decide.

ROLE OF CIVIL SOCIETY

The Act recognises the role of civil society in consumer protection by providing for the support of any juristic

person or association of persons that meet the set criteria as consumer protection groups.

The Act allows class actions in the form of accredited consumer protection groups, which groups may act to

protect the interests of a consumer individually or of consumers collectively.

SAFETY RECALL GUIDELINES

The product safety recall guidelines (the Guidelines) require a supplier to adopt a system that will ensure the

efficient and effective recall of unsafe consumer products from consumers and from within the supply chain.

SCOPE OF THE GUIDELINES

The Guidelines have been developed to help suppliers plan for, and respond to, an incident where the recall of

potentially unsafe consumer products is required. It does this by setting out:

The legal requirements for suppliers in relation to a consumer product recall specified in the CPA

The role and responsibilities of suppliers and government agencies when recall is necessary.

Requirements for conducting a recall, including:

○ Notification;

○ Recall strategy;

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○ Retrieval of the product;

○ Reporting on the recall.

BUSINESS NAMES AND INDUSTRY CODES OF CONDUCT

REGISTRATION OF BUSINESS NAMES

Section 79 of the Act prohibits any person from carrying on business except under the person‟s full name as

recorded in an identity document, or officially recognised, or in the case of a juristic person (for example, a

company), a business name registered with the Registrar of Companies.

This means that a trading name must be the registered name of the entity. Section 80 does, however, allow a

person to register any number of business names that are used or will be used in carrying on business.

The present custom whereby a company or CC carries on business as “XYZ Bank, trading as XYZ Loans” is no

longer allowed.

A business name may not be the same as, or confusingly similar to an entity already registered under the

Companies Act, the Close Corporations Act or the Co-operatives Act.

The name may also not be the same as or similar to a registered trade mark belonging to another person.

If an entity conducts business under a trading name that is not its registered name, the National Consumer

Commission may require it to cease trading under that name.

The possible proliferation of new registered business names will require vigilance on the part of businesses and

trade mark proprietors to protect their intellectual property rights in respect of their registered names.

DEVELOPMENT OF INDUSTRY CODES

Clause 82 establishes a scheme for the development through consultation of industry codes of conduct, relating

to consumer matters, and provides for them to receive the force of law by being prescribed by the Minister.

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PROTECTION OF PERSONAL INFORMATION BILL

PURPOSE OF THE ACT

POPI is to promote the protection of personal information:

Processed by public and private bodies;

To introduce information protection principles so as to establish minimum requirements for the processing

of personal information;

Establish an Information Protection Regulator;

To provide for the issuing of codes of conduct;

To provide for the rights of persons regarding unsolicited electronic communications and automated

decision making;

To regulate the flow of personal information across the borders of the Republic; and

To provide for matters connected therewith.

APPLICATION OF THE ACT

The Bill applies to any public or private body or any other person who (alone or in conjunction with others)

determines the purpose of, and means for, processing Personal Information (called a "Responsible Party").

The Bill regulates the processing of "Personal Information", being information relating to an identifiable, living,

individual, and where applicable, an identifiable, existing juristic person such as a company or close corporation

(the "Data Subject").

WHAT INFORMATION IS PROTECTED?

Personal Information includes, but is not limited to:

Information relating to the race, gender, sex, pregnancy, marital status, national, ethnic or social origin,

colour, sexual orientation, age, physical or mental health, well-being, disability, religion, conscience,

belief, culture, language and birth of the person;

Information relating to the education or the medical, financial, criminal or employment history of the

person;

Any identifying number, symbol, e-mail address, physical address, telephone number or other particular

assignment to the person;

The blood type or any other biometric information of the person;

The personal opinions, views or preferences of the person;

Correspondence sent by the person that is implicitly or explicitly of a private or confidential nature, or

further correspondence that would reveal the contents of the original correspondence;

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The views or opinions of another individual about the person; and

The name of the person if it appears with other personal information relating to the person, or if the

disclosure of the name itself would reveal information about the person.

EXCLUSIONS

The Act does not apply to the processing of the following personal information:

Purely personal or household activity;

De-identified info that cannot be re-identified again;

Processing by or on behalf of the State:

○ National security, defence or public safety;

○ Criminal offences, prosecution, execution of criminal sentences and security measures.

Processing for exclusively journalistic purposes;

By the Cabinet and its committees;

Judicial functions of a court;

Exempted in terms of section 34.

CONDITIONS FOR LAWFUL PROCESSING OF PERSONAL INFORMATION

The Bill regulates the "Processing" of Personal Information. This is very widely defined and covers any activity or

operation involving personal information, whether automated or not. It includes the collection, recording,

organisation, storage, updating or modification, retrieval, consultation, use, dissemination by means of

transmission, distribution or making available in any other form, merging, linking, as well as blocking, erasure or

destruction of information.

The Processing of Personal Information must comply with certain requirements which are framed as the eight

"Information Protection Principles" ("Principles") in the Bill.

The Information Protection Principles are as follows:

Accountability

The responsible party must ensure that all principles are complied with.

Processing limitation

Lawfulness of processing:

○ Lawfully and in a reasonable manner.

Minimality of information:

○ For a specific purpose, adequate, relevant and not excessive.

Consent and other grounds of justification:

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○ Objection allowed in specific instances;

○ If data subject has objected, the responsible party may no longer process the personal

information.

Collection directly from data subject

○ Exceptions allowed: public record; necessary for the enforcement of laws or national security, not

reasonably practicable etc.

Purpose specification

Specifying a purpose specific, explicitly defined, lawful, related to a function or activity of the responsible

party.

Informing data subject of purpose.

Retaining data for no longer than needed.

Further processing limitation

Compatible with original purpose.

Exceptions e.g. statistical, historical or research purposes.

Quality of information

Reasonably practicable steps, given purpose, to ensure complete, up to date, accurate and not

misleading.

Openness

Notification to the Regulator and the data subject of planned processing.

Security safeguards

Companies will have to implement appropriate, reasonable technical and organisational measures to

prevent the loss or unauthorised use of personal information. Companies will have to identify all internal

and external risks to personal information and establish and maintain appropriate security safeguards. In

addition to a well drafted privacy and data protection policy, companies will have to invest in technologies

like encryption and access control.

Processing by an operator:

○ Only with knowledge of the responsible party;

○ Duty of confidentiality.

Notification of security compromises:

○ Notification to the Regulator and the data subject when personal information has been accessed

or acquired by any unauthorised person.

Data subject participation

Right to access:

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○ The data subject has the right to request, free of charge, whether or not the responsible party

holds personal information and to whom such data was disclosed;

○ Request a description of the personal information.

Correction of personal information:

○ The data subject has the right to request the responsible party to correct or delete personal

information that is inaccurate, irrelevant, excessive, out of date, incomplete, misleading or

obtained unlawfully.

Manner of access is in terms of the Promotion to Access of Information Act.

PROCESSING OF SPECIAL PERSONAL INFORMATION

Subject to certain exclusions, the processing of Special Personal Information is generally prohibited by the Bill.

Special Personal Information is information concerning:

A child who is subject to parental control in terms of the law; or

A data subject's religious or philosophical beliefs, race or ethnic origin, trade union membership, political

opinions, health, sexual life, or criminal behaviour.

INFORMATION PROTECTION REGULATOR

The Information Protection Regulator will have wide-ranging investigative and enforcement powers.

Establishment of Information Protection Regulator:

Independent juristic person;

Receive notification of processing:

○ Failure to notify is an offence.

Keep a register of processing activities;

Powers and duties:

○ Education and research;

○ Monitor and enforce compliance:

― Audits;

― Prior investigations;

― Information notices;

― Enforcement notices;

― Issue codes of conduct.

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INFORMATION PROTECTION OFFICER

Duties and Responsibilities of the Information Protection Officer include:

To encourage compliance, by the body, with the information protection principles;

Deal with requests made to the body pursuant to this Act by the data subjects;

Work with the Regulator in relation to investigations conducted; and

Ensuring compliance by the body with the provisions of this Act.

Every organisation must have an Information Protection Officer. Officers may only take up their duties in terms of

the POPI Act after the responsible party (Information Protection Officer) has been registered with the Regulator.

NOTIFICATION OF PROCESSING

Personal Information that is processed in a fully or partly automated manner may only be processed if the

Responsible Party has notified the Regulator in the prescribed manner, in advance. Failure to notify is an

offence.

RIGHTS OF DATA SUBJECTS REGARDING UNSOLICITED ELECTRONIC

COMMUNICATIONS AND AUTOMATED DECISION MAKING

The processing of Personal Information for the purpose of direct marketing by means of automatic calling

machines, facsimile machines, SMS‟s or electronic mail is prohibited unless the Data Subject has given consent

to the processing, or the Data Subject is a customer of the responsible party (subject to conditions).

Any communication for the purpose of direct marketing (such as spam mail) must contain details of the identity

of the sender or the person on whose behalf the communication has been sent, and an address or other contact

details to which the recipient may send a request that such communications cease.

Marketing communications may be sent to customers only if their details were obtained in the context of the sale

of goods or services. Only the goods or services of the same company may be advertised in this manner – in

other words, marketers may not forward personal details to associated companies or sell such databases.

Any marketing communication must clearly indicate the identity of the sender and give an “unsubscribe”

address.

Prior to the publication or use of directories, all those included in the directory should be informed of their

inclusion and the intended purpose and use of the directory. Individuals must also be given a reasonable

opportunity to object to their inclusion in the directory and request the withdrawal of their information.

ENFORCEMENT

POPI contains a complaints procedure whereby any person may lodge a complaint with the regulator against

any company or organisation relating to unsolicited communications, directories and automated decision-

making. The regulator will have extensive powers of investigation including:

The right to apply to a court for a warrant to enter and search premises;

The right to bring a claim for damages;

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The right to issue enforcement notices.

OFFENCES AND PENALTIES

Contravention of any of the Principles is not, in itself a criminal offence. However the Regulator has the power to

issue enforcement notices for certain breaches of the Bill and failure to comply with an enforcement notice is a

criminal offence.

On conviction of an offence under the Bill, a person is liable to a fine and/or up to 12 months imprisonment,

except if the offence relates to obstructing the Regulator, in which case the person is liable to a fine and/or up to

10 years imprisonment.

IMPLEMENTATION TIMELINE

Companies must, within one year from the date that the Bill comes into force, ensure that their Processing of

Personal Information complies with the legislation and is notified to the Regulator. This one year grace period

may be extended by the Minister to a maximum of three years.

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THE COMPANIES ACT, 71 OF 2008

CATEGORIES OF COMPANIES (SECTION 8)

Two types of companies may be formed and incorporated, namely profit companies and non-profit companies.

A profit company is:

A state-owned company;

A private company if:

○ It is not a state-owned company; and

○ Its Memorandum of Incorporation prohibits it from offering any of its securities to the public and

restricts the transferability of its securities.

A personal liability company if:

○ It meets the criteria for a private company; and

○ Its MOI states that it is a personal liability company.

A public company, in any other case;

Apply to a non-profit company only if the company has voting members; and

When applied to a non-profit company, are subject to the provisions of item 4 of Schedule 1.

With respect to a non-profit company that has voting members, a reference in this Act to „„a shareholder‟‟, „„the

holders of a company‟s securities‟‟, „„holders of issued securities of that company‟‟ or „„a holder of voting rights

entitled to be voted‟‟ is a reference to the voting members of the non-profit company.

FINANCIAL STATEMENTS (SECTION 29)

If a company provides any financial statements, including any annual financial statements, to any person for any

reason, those statements must:

Satisfy the financial reporting standards;

Present fairly the state of affairs and business of the company, and explain the transactions and financial

position of the business of the company;

Show the company‟s assets, liabilities and equity, as well as its income and expenses, and any other

prescribed information;

Set out the date on which the statements were published, and the accounting period to which the

statements apply; and

Bear, on the first page of the statements whether the statements:

○ Have been audited;

○ If not audited, have been independently reviewed; or

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○ Have not been audited or independently reviewed.

The name and professional designation of the individual who prepared, or supervised the preparation of

the statements.

Any financial statements and annual financial statements must not be:

False or misleading in any material respect; or

Incomplete in any material particular.

A person is guilty of an offence if the person is a party to the preparation, approval, dissemination or publication

of any financial statements, including any annual financial statements, knowing that those statements:

Do not comply with the above requirements; or

Are materially false or misleading.

ANNUAL FINANCIAL STATEMENTS (SECTION 30)

Each year, a company must prepare annual financial statements within six months after the end of its financial

year, or such shorter period as may be appropriate to provide the required notice of an annual general meeting.

The annual financial statements must:

Be audited, in the case of a public company; or

In the case of any other profit or non-profit company:

○ Be audited, if so required by the regulations;

○ Audited voluntarily if the company‟s MOI, or a shareholders resolution so requires, or if the

company‟s board has so determined; or

○ Independently reviewed.

If every person who is a holder of, or has a beneficial interest in, any securities issued by that company is also a

director of the company, that company is exempt from the requirements to have its annual financial statements

audited or independently reviewed, but this exemption:

Does not apply to the company if it falls into a class of company that is required to have its annual

financial statement audited in terms of the regulations; and

Does not relieve the company of any requirement to have its financial statements audited or reviewed in

terms of another law, or in terms of any agreement to which the company is a party.

The annual financial statements of a company must:

Include an auditor‟s report, if the statements are audited;

Include a report by the directors with respect to the state of affairs, the business and profit or loss of the

company, or of the group of companies, if the company is part of a group;

Be approved by the board and signed by an authorised director; and

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Be presented to the first shareholders meeting after the statements have been approved by the board.

The annual financial statements of each company that is required to have its annual financial statements audited

must include particulars showing:

The remuneration and benefits received by each director, or individual holding any prescribed office in

the company;

The amount of:

○ Any pensions paid by the company, to or receivable by, current or past directors or individuals

who hold or have held any prescribed office in the company;

○ Any amount paid or payable by the company, to a pension scheme with respect to current or past

directors or individuals who hold or have held any prescribed office in the company;

○ The amount of any compensation paid in respect of loss of office to current or past directors or

individuals who hold or have held any prescribed office in the company;

○ The number and class of any securities issued to a director or person holding any prescribed

office in the company, or to any person related to any of them, and the consideration received by

the company for those securities; and

○ Details of service contracts of current directors and individuals who hold any prescribed office in

the company.

The information to be disclosed must satisfy the prescribed standards, and must show the amount of any

remuneration or benefits paid to or receivable by persons in respect of:

Services rendered as directors or prescribed officers of the company; or

Services rendered while being directors or prescribed officers of the company:

○ As directors or prescribed officers of any other company within the same group of companies; or

○ Otherwise in connection with the carrying on of the affairs of the company, or any other company

within the same group of companies.

Remuneration‟ includes:

Fees paid to directors for services rendered by them to or on behalf of the company, including any

amount paid to a person in respect of the person‟s accepting the office of director;

Salary, bonuses and performance-related payments;

Expense allowances, to the extent that the director is not required to account for the allowance;

Contributions paid under any pension scheme;

The value of any option or right given directly or indirectly to a director, past director or future director, or

person related to any of them;

Financial assistance to a director, past director or future director, or person related to any of them, for the

subscription of options or securities, or the purchase of securities; and

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With respect to any loan or other financial assistance by the company to a director, past director or

future director, or a person related to any of them, or any loan made by a third party to any such

person, if the company is a guarantor of that loan, the value of:

○ Any interest deferred, waived or forgiven; or

○ The difference in value between:

― The interest that would reasonably be charged in comparable circumstances at fair market

rates in an arm‟s length transaction; and

― The interest actually charged to the borrower, if less.

Regulation 26: Interpretation of regulations affecting transparency and accountability

Independent accounting professional

“Independent accounting professional”, means a person who is:

A registered auditor in terms of the Auditing Profession Act; or

A member in good standing of a professional body that has been accredited in terms of

section 33 of the Auditing Profession Act; or

Qualified to be appointed as an accounting officer of a close corporation in terms of

section 60 (1), (2) and (4) of the Close Corporations Act, 1984 (Act No. 69 of 1984); and

Does not have a personal financial interest in the company or a related or inter-related

company and is not:

o Involved in the day to day management of the company‟s business, nor has been

so involved at any time during the previous three financial years; or

o A prescribed officer, or full-time executive employee, of the company or another

related or inter-related company, or have been such an officer or employee at any

time during the previous three financial years; and

o Is not related to any person mentioned above.

Independently compiled and reported

“Independently compiled and reported” means that the annual financial statements are prepared:

By an independent accounting professional;

On the basis of financial records provided by the company; and

In accordance with any relevant financial reporting standards.

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Public interest score

Every company must calculate its “public interest score” at the end of each financial year, calculated as

the sum of the following:

A number of points equal to the average number of employees of the company during the

financial year;

One point for every R1 000 000 (or portion thereof) in third party liability of the company, at

the financial year end;

One point for every R1 000 000 (or portion thereof) in turnover during the financial year;

and

One point for every individual who, at the end of the financial year, is known by the

company:

o In the case of a profit company, to directly or indirectly have a beneficial interest in

any of the company‟s issued securities; or

o In the case of a non-profit company, to be a member of the company, or a member

of an association that is a member of the company.

Regulation 27: Financial Reporting Standards

A company‟s financial statements may be compiled internally or independently.

A company‟s financial statements must be regarded as having been compiled internally, unless they have

been „independently compiled and reported.

Nothing precludes a company:

That is required to prepare its financial statements to the standards of IFRS for SME‟s, from

preparing its financial statements to the standards of IFRS instead; or

That is not subject to any prescribed standards, from preparing its financial statements to

the standards of either IFRS or IFRS for SME‟s or SA GAAP.

Any financial statements must comply with the applicable standards for that category of company as

follows:

State owned and profit companies

Category of Companies Financial Reporting Standard

State owned companies. IFRS, but in the case of any conflict with

any requirement in terms of the Public

Finance Management Act, the latter

prevails.

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Category of Companies Financial Reporting Standard

Public companies listed on an exchange. IFRS

Public companies not listed on an

exchange. One of –

(a) IFRS; or

(b) IFRS for SME‟s, provided that the

company meets the scoping

requirements outlined in the IFRS for

SME‟s.

Profit companies, other than state- owned

or public companies, whose public interest

score for the particular financial year is at

least 350.

One of –

(a) IFRS; or

(b) IFRS for SME‟s, provided that the

company meets the scoping

requirements outlined in the IFRS for

SME‟s.

Profit companies, other than state – owned

or public companies –

(a )whose public interest score for the

particular financial year is at least 100 but

less than 350; or

(b) whose public interest score for the

particular financial year is less than 100,

and whose statements are independently

compiled.

One of –

(a) IFRS; or

(b) IFRS for SME‟s, provided that the

company meets the scoping

requirements outlined in the IFRS for

SME‟s; or

(c) SA GAAP.

Profit companies, other than state - owned

or public companies, whose public interest

score for the particular financial year is less

than 100, and whose statements are

internally compiled.

The Financial Reporting Standard as

determined by the company for as long

as no Financial Reporting Standard is

prescribed.

Non - profit companies

Category of Companies Financial Reporting Standard

Non profit companies that are required in

terms of regulation 28 (2) (b) to have their

annual financial statements audited.

IFRS, but in the case of any conflict

with any requirements in terms of the

Public Finance Management Act, the

latter prevails.

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Category of Companies Financial Reporting Standard

Non profit companies, other than those

contemplated in the first row above, whose

public interest score for the particular

financial year is at least 350.

One of –

(a) IFRS; or

(b) IFRS for SME‟s, provided that the

company meets the scoping

requirements outlined in the IFRS for

SME‟s.

Non profit companies, other than those

contemplated in the first row above –

(a)whose public interest score for the

particular financial year is at least 100, but

less than 350; or

(b)whose public interest score for the

particular financial year is less than 100,

and whose financial statements are

independently compiled.

One of –

(a) IFRS; or

(b) IFRS for SME‟s, provided that the

company meets the scoping

requirements outlined in the IFRS for

SME‟s; or

(c) SA GAAP.

Non profit companies, other than those

contemplated in the first row above, whose

public interest score for the particular

financial year is less than 100, and whose

financial statements are internally compiled.

The Financial Reporting Standard as

determined by the company for as long

as no Financial Reporting Standard is

prescribed.

Regulation 28: Categories of companies required to be audited

In addition to public companies and state owned companies, any company that falls within any of the

following categories in any particular financial year must have its annual financial statements for that

financial year audited:

Any profit or non-profit company if, in the ordinary course of its primary activities, it holds

assets in a fiduciary capacity for persons who are not related to the company, and the

aggregate value of such assets held at any time during the financial year exceeds R 5

million;

Any non-profit company, if it was incorporated:

o Directly or indirectly by the state, an organ of state, a state-owned company, an

international entity, a foreign state entity or a foreign company; or

o Primarily to perform a statutory or regulatory function in terms of any legislation, or

to carry out a public function at the direct or indirect initiation or direction of an

organ of the state, a state-owned company, an international entity, or a foreign

state entity, or for a purpose ancillary to any such function; or

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Regulation 28: Categories of companies required to be audited

Any other company whose public interest score in that financial year, as calculated:

o Is 350 or more; or

o Is at least 100, if its annual financial statements for that year were internally

compiled.

Regulation 29: Independent review of financial statements

Independent reviewer

“Independent reviewer”, means a person who has been appointed to perform an independent review

under this regulation.

This regulation applies to a company, with respect to any particular financial year, unless the company:

Is exempt from any requirement to have its annual financial statements for that year audited

or reviewed;

Is required by its own Memorandum of Incorporation, or required in terms of the Act or

regulation 28, to have its annual financial statements for that financial year audited; or

Has voluntarily had its annual financial statements for that year audited.

A company to which this regulation applies must have its annual financial statements independently

reviewed in accordance with ISRE 2400.

An independent review of a company‟s annual financial statements must be carried out:

In the case of a company whose public interest score for the particular financial year was at

least 100, by a registered auditor, or a member in good standing of a professional body that

has been accredited in terms of section 33 of the Auditing Professions Act; or

In the case of a company whose public interest score for the particular financial year was

less than 100, by:

o A registered auditor, or a member in good standing of a professional body that has

been accredited in terms of section 33 of the Auditing Professions Act; or

o A person who is qualified to be appointed as an accounting officer of a close

corporation in terms of section 60 (1), (2) and (4) of the Close Corporations Act,

1984 (Act No. 69 of 1984).

An independent review of a company‟s annual financial statements must not be carried out by an

independent accounting professional who was involved in the preparation of the said annual financial

statements.

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Reportable irregularity

“Reportable irregularity” means any act or omission committed by any person responsible for the

management of a company, which:

Unlawfully has caused or is likely to cause material financial loss to the company or to any

member, shareholder, creditor or investor of the company in respect of his, her or its

dealings with that entity; or

Is fraudulent or amounts to theft; or

Causes or has caused the company to trade under insolvent circumstances.

An independent reviewer of a company that is satisfied or has reason to believe that a reportable

irregularity has taken place or is taking place in respect of that company must, without delay, send a

written report to the Commission.

The report must give particulars of the reportable irregularity and must include such other information and

particulars as the independent reviewer considers appropriate.

The independent reviewer must within three business days of sending the report to the Commission

notify the members of the board of the company in writing of the sending of the report.

A copy of the report to the Commission must accompany the notice.

The independent reviewer must as soon as reasonably possible but not later than 20 business days from

the date on which the report was sent to the Commission:

Take all reasonable measures to discuss the report with the members of the board of the

company;

Afford the members of the board of the company an opportunity to make representations in

respect of the report; and

Send another report to the Commission, which report must include a statement that the

independent reviewer is of the opinion that:

o No reportable irregularity has taken place or is taking place; or

o The suspected reportable irregularity is no longer taking place and that adequate

steps have been taken for the prevention or recovery of any loss as a result thereof,

if relevant; or

o The reportable irregularity is continuing; and

o Detailed particulars and information supporting the statement.

The Commission must as soon as possible after receipt of a report containing notify any appropriate

regulator in writing of the details of the reportable irregularity to which the report relates and provide it

with a copy of the report and may investigate any alleged contravention of the Act.

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FINANCIAL YEAR OF COMPANY (SECTION 27)

A company must have a financial year, ending on a date set out in the company‟s Notice of Incorporation.

The board may change its financial year -end at any time, by filing a notice of that change, but:

It may not do so more than once during any financial year;

The newly established financial year- end must be later than the date on which the notice is filed;

and

The date as changed may not result in a financial year ending more than 15 months after the end

of the preceding financial year.

The financial year of the company is its annual accounting period.

ACCESS TO FINANCIAL STATEMENTS / RELATED INFORMATION (SECTION 31)

A person who holds or has a beneficial interest in any securities issued by a company, is entitled:

Without demand to receive a notice of the publication of any annual financial statements of the

company required by this Act, setting out the steps required to obtain a copy of those statements;

and

On demand to receive without charge one copy of any annual financial statements of the company

required by this Act.

If a judgment creditor of a company has been informed, by a person whose duty it is to execute the judgment,

that there appears to be insufficient disposable property to satisfy that judgment, the judgement creditor is

entitled within five business days after making a demand, to receive without charge, one copy of the most recent

annual financial statements of the company.

For the purpose of the reports an independent reviewer may carry out such investigations as the

independent reviewer may consider necessary and, in performing any duty referred to in the preceding

provisions of this regulation the independent reviewer must have regard to all the information which

comes to the knowledge of the independent reviewer from any source.

Where a company is liquidated, whether provisionally or finally, and an independent reviewer at the time

of the liquidation:

Has sent or is about to send a report, the report must also be submitted to a provisional

liquidator or liquidator, as the case may be, at the same time as the report is sent to the

Commission or as soon as reasonably possible after his or her appointment; or

Has not sent a report and is requested by a provisional liquidator to send a report, the

independent reviewer must as soon as reasonably possible:

o Send the report together with a motivation as to why a report was not sent; or

o Submit a notice that in the independent reviewer‟s opinion no report needed to be

submitted, together with a justification of the opinion.

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Trade unions must, through the Commission and under conditions as determined by the Commission, be given

access to company financial statements for purposes of initiating a business rescue process.

It is an offence for a company to:

Fail to accommodate any reasonable request for access, or to unreasonably refuse access, to any

record that a person has a right to inspect or copy in terms of this section; or

Otherwise impede, interfere with, or attempt to frustrate the reasonable exercise by any person of

the rights set out in this section.

Regulation 25

A company must notify the Commission of a change in its financial year end by filing Form CoR 25.

ANNUAL RETURN (SECTION 33)

Every company must file an annual return in the prescribed form with the prescribed fee, and within the

prescribed period after the end of the anniversary of the date of its incorporation, including a copy of its annual

financial statements.

Each year, in its annual return, every company must designate a director, employee or other person responsible

for the company‟s compliance with this requirement.

Regulation 30: Company annual returns

Every company must file an annual return in the prescribed form (CoR 30.1) together with the prescribed fee

set out in Table CR2 B of the Regulations, unless exempt from such payment, within 30 business days after:

The anniversary of its date of incorporation, in the case of a company incorporated in the

Republic; or

The date that its registration was transferred to the Republic, in the case of a domesticated

company.

A company that is required by the Act or Regulations to have its annual financial statements audited

must file a copy of the latest approved audited financial statements on the date that it files its annual

return. Alternatively, a company that is not required in terms of the Act or Regulations to be audited may

elect to file a copy of its audited or reviewed statements together with the return.

A company which does not file annual financial statements as described above must file a financial

accountability supplement to its annual return.

The Commission must establish a system to select and review a sample of financial accountability

supplements, audited annual financial statements or independently reviewed annual financial statements

that have been filed, with the objective of monitoring compliance with the financial record keeping and

financial reporting provisions of the Act. The Commission may issue a compliance notice to any such

company setting out changes that are required to the company‟s practices to better comply with the

specific provisions of the Act.

Any company that has been inactive during the financial year preceding the date on which its annual

return becomes due, may apply to the Commission for an exemption from payment of the fee, provided

that the application is supported by the financial statements indicating that the company had in fact no

turnover during that financial year.

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Regulation 30: Company annual returns

Annual Return fees

Annual Turnover Filing within 30 business days

after anniversary

Filing more than 30 business days

after anniversary

Less than R1 000 000 R100 R150

R1 000 000 but less than

R10 000 000

R450 R600

R10 000 000 but less than

R25 000 000

R2 000 R2 500

R25 000 000 or more R3 000 R4 000

FORM AND STANDARDS FOR COMPANY RECORDS (SECTION 24)

Any documents, accounts, books, writing, records or other information that a company is required to keep must

be kept in written form, or other form or manner that allows that information to be converted for a period of seven

years.

The following documents must also be kept for seven years:

Copies of all reports presented at an AGM of the company;

Annual financial statements for seven years after the date on which such particular statements

were issued;

Accounting records, for the current financial year and for the previous seven completed financial

years of the company;

Notice and minutes of all shareholders meetings, including:

○ All resolutions adopted by them;

○ Any document that was made available by the company to the holders of securities in

relation to each such resolution for seven years after the date each such resolution was

adopted;

○ Copies of any written communications sent generally by the company to all holders of any

class of the company‟s securities; and

○ Minutes of all meetings and resolutions of directors, or directors‟ committees, or the audit

committee.

Every company must maintain the following documentation and records indefinitely:

A copy of its MOI, and any amendments or alterations to it, and any rules indefinitely;

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A record of its directors, including details of any person who has served as a director of the

company which must be retained for seven years after the past director retired from the company;

A securities register or its equivalent in the case of a profit company, or a member‟s register in the

case of a non-profit company that has members;

Maintain a record of its company secretaries and auditors, including:

○ The name, including any former name, of each such person; and

○ The date of every such appointment.

A company‟s record of directors must include, in respect of each director, that person‟s:

Full name, and any former names;

Identity number or, if the person does not have an identity number, the person‟s date of birth;

Nationality and passport number, if the person is not a South African citizen;

Occupation;

Date of their most recent election or appointment as director of the company;

Name and registration number of every other company or foreign company of which the person is

a director, and in the case of a foreign company, the nationality of that company; and

Any other prescribed information.

Regulation 23

A company's record of directors must include, with respect to each director of the company:

The address for service for that director; and

In the case of a company that is required to have an audit committee, the professional

qualifications, if any, and previous experience of the director.

LOCATION OF COMPANY RECORDS (SECTION 25)

The records must be accessible at, or from the company‟s registered office, or another location, or other

locations, within the Republic.

A company must file a notice, setting out the location or locations at which any particular records are kept or

from which they are accessible if those records:

Are not kept at or made accessible from the company‟s registered office; or

Are moved from one location to another.

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Regulation 22

A company must notify the Commission of the location, or of any change in the location, of any company records

that are not located at its registered office, by filing Form CoR 22, indicating the date as of which the records will

be kept at the relevant location, which must be the date on which the notice is filed, or a later date.

ACCESS TO COMPANY RECORDS (SECTION 26)

A person who holds, or has a beneficial interest, in any securities issued by a profit company or who is a

member of a non-profit company, has a right to inspect and copy, without any charge for any such inspection, or

upon payment of no more than the prescribed maximum charge for any such copy, the information contained in

the following records of the company:

The company's Memorandum of Incorporation and any amendments to it, and any rules made by the

company;

The records in respect of the company's directors;

The reports to annual meetings, and annual financial statements;

The notices and minutes of annual meetings, and communications to shareholders meetings;

The securities register of a profit company, or the members register of a non-profit company that has

members.

Any other person has a right to inspect the securities register of a profit company, or the members register of a

non-profit company that has members, or the register of directors of a company, upon payment of an amount not

exceeding the prescribed maximum fee for any such inspection.

The MOI may establish additional information rights of any person, with respect to any information pertaining to

the company, but no such right may negate or diminish any mandatory protection of any record required by or in

terms of Part 3 of the Promotion of Access to Information Act, 2000 (Act No. 2 of 2000).

A person may exercise the rights above:

For a reasonable period during business hours;

By direct request made to a company in the prescribed manner, either in person or through an attorney or

other personal representative designated in writing; or

In accordance with the Promotion of Access to Information Act, 2000 (Act No.2 of 2000).

Where a company receives a request it must within 14 business days comply with the request by providing the

opportunity to inspect or copy the register concerned to the person making such request.

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Regulation 24

A person claiming a right of access to any record held by a company must make a written request, by delivering

to the company:

A completed Request for Access to Information in Form CoR 24; or

To the extent applicable any further documents or other material required in terms of the

Promotion of Access to Information Act, 2000.

ACCOUNTING RECORDS (SECTION 28)

A company must keep accurate and complete accounting records in one of the official languages of the

Republic.

A company‟s accounting records must be kept at, or be accessible from, the registered office of the company.

It is an offence for a company with an intention to deceive or mislead any person:

To fail to keep accurate or complete accounting records;

To keep records other than in the prescribed manner and form; or

To falsify any of its accounting records, or permit any person to do so.

It is also an offence for any person to falsify a company‟s accounting records.

The Commission may issue a compliance notice to a company in respect of any failure to comply with the

requirements of this section.

Regulation 25

The accounting records of a company must include:

A register of the company's assets and liabilities including;

A register of the company's non-current assets showing for each such asset:

○ The date the company acquired it, and the acquisition cost;

○ The date the company revalued it, and the amount of the revaluation and, if it was

revalued after the Act took effect, the basis of, and reason for, the revaluation;

○ The date the company disposed of it, once it has been disposed, and the value of the

consideration received for it, and, if it was disposed of after the Act took effect, the

name of the person to whom it was transferred; and

○ A register of any loan by the company to a shareholder, director, prescribed officer or

employee of the company, or to a person related to any of them, including the amount

borrowed, the interest rate, and the terms of re-payment.

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Regulation 25

A record of any property held by the company in a fiduciary capacity;

A record of any loan by the company to a shareholder, director, prescribed officer or employee of the

company, or to a person related to any of them, including the amount borrowed, the interest rate, the

terms of re-payment, and material details of any breach, default or renegotiation of any such loan;

A record of all liabilities and obligations including:

A register of any loan to the company from a shareholder, director, prescribed officer or

employee of the company, or from a person related to any of them, including the amount

borrowed, the interest rate, and the terms of re-payment;

A register of any guarantee granted by the company in respect of an obligation to a third

party incurred by a shareholder, director, prescribed officer or employee of the company, or

by a person related to any of them, including the amount guaranteed, the interest rate, the

terms of re-payment, and the circumstances in which the company may be called upon to

honour the guarantee;

If the company trades in goods, a record of inventory and stock in trade, statements of the annual

stocktaking, and records to enable the value of stock at the end of the financial year to be

determined; and

A record of the company's revenue and expenditures, including:

Daily records of all money received and paid out, in sufficient detail to enable the nature of

the transactions and, except in the case of cash transactions, the names of the parties to the

transactions to be identified;

Daily records of all goods purchased and sold on credit, and services received and rendered

on credit, in sufficient detail to enable the nature of those goods or services and the parties

to the transactions to be identified;

Statements of every account maintained in the name of the company, or in any name under

which the company carries on its activities, together with vouchers or other supporting

documentation for all transactions recorded on any such statement.

A non-profit company must maintain a register of revenue received from donations, grants, and member's

fees, or in terms of any funding contracts or arrangements with any party.

The accounting records required to be kept by the Act and this regulation must be kept in such a manner

as:

To provide adequate precautions against:

○ Theft, loss or intentional or accidental damage or destruction;

○ Falsification.

To facilitate the discovery of any falsification;

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To comply with any other applicable law dealing with accounting records, access to

information, or confidentiality.

If a company keeps any of its accounting records in electronic form, the company must:

Provide adequate precautions against loss of the records as a result of damage to, or failure

of, the media on which the records are kept; and

Ensure that the records are at all times capable of being retrieved to a readable and

printable form, including by converting the records from legacy to later systems, storage

media, or software, to the extent necessary from time to time.

APPOINTMENT OF AUDITOR (SECTION 90)

Upon its incorporation, and each year at its annual general meeting, a public company or state-owned company

must appoint an auditor.

To be appointed as an auditor a person or firm:

Must be a registered auditor;

Must not be a director or prescribed officer of the company;

An employee or consultant of the company who was or has been engaged for more than one year in the

maintenance of any of the company‟s financial records or the preparation of any of its financial

statements;

A director, officer or employee of a person appointed as company secretary;

A person who, alone or with a partner or employees, habitually or regularly performs the duties of

accountant or bookkeeper, or performs related secretarial work, for the company;

A person who, at any time during the five financial years immediately preceding the date of appointment,

was a person mentioned above, or a person related to a person mentioned above;

Must be acceptable to the company‟s audit committee as being independent of the company.

If a company that is required to appoint an auditor does not do so when it registers the incorporation of the

company, the directors of the company must appoint the first auditor of the company within 40 business days

after the date of incorporation of the company.

The first auditor of a company holds office until the conclusion of the first annual general meeting of the

company.

RESIGNATION OF AUDITORS & VACANCIES (SECTION 91)

The resignation of an auditor is effective when the notice is filed.

If a vacancy arises in the office of auditor of a company, the board of that company:

Must appoint a new auditor within 40 business days, if there was only one incumbent auditor of the

company; and

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May appoint a new auditor at any time, if there was more than one incumbent, but while any such

vacancy continues, the surviving or continuing auditor may act as auditor of the company.

Before making an appointment:

The board must propose to the company‟s audit committee, within 15 business days after the vacancy

occurs, the name of at least one registered auditor to be considered for appointment as the new auditor;

and

May proceed to make an appointment of a person if, within five business days after delivering the

proposal, the audit committee does not give notice in writing to the board rejecting the proposed auditor.

ROTATION OF AUDITORS (SECTION 92)

The same individual may not serve as the auditor or designated auditor of a company for more than five

consecutive financial years.

If an individual has served as the auditor, or designated auditor, of a company for two or more consecutive

financial years, and then ceases to be the auditor or designated auditor, the individual may not be appointed

again as the auditor or designated auditor of that company until after the expiry of at least two further financial

years.

RIGHTS AND RESTRICTED FUNCTIONS OF AUDITORS (SECTION 93)

The auditor of a company:

Has the right of access at all times to the accounting records and all books and documents, and is

entitled to require from the directors or prescribed officers any information and explanations necessary for

the performance of the auditor‟s duties;

The auditor of a holding company, has the right of access to all current and former financial statements of

any subsidiary of that holding company and is entitled to require from the directors or officers of the

holding company or subsidiary any information and explanations in connection with any such statements

and in connection with the accounting records, books and documents of the subsidiary as necessary for

the performance of the auditor‟s duties;

Is entitled to:

○ Attend any general shareholders meeting;

○ Receive all notices of, and other communications relating to any general shareholders meeting;

and

○ Be heard at any general shareholders meeting on any part of the business of the meeting that

concerns the auditor‟s duties or functions.

An auditor may not perform any services that would place the auditor in a conflict of interest.

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BOARD COMMITTEES (SECTION 72)

Except to the extent that the MOI provides otherwise, the board may:

Appoint any number of committees of directors; and

Delegate to any committee any of the authority of the board.

Except to the extent that the MOI, or a resolution establishing a committee, provides otherwise, the committee:

May include persons who are not directors, but:

○ Any such person must not be ineligible or disqualified to be a director; and

○ No such person has a vote on a matter to be decided by the committee;

○ May consult with or receive advice from any person; and

○ Has the full authority of the board in respect of a matter referred to it.

Regulation 43: Social and ethics committee

This regulation applies to:

Every state owned company;

Every listed public company; and

Any other company that has in any two of the previous five years, scored above 500 points.

A company to which this regulation applies must appoint a social and ethics committee unless:

It is a subsidiary of another company that has a social and ethics committee, and the social

and ethics committee of that other company will perform the functions required by this

regulation on behalf of that subsidiary company; or

It has been exempted by the Tribunal.

A board of a company that is required to have a social and ethics committee and that exists on the

effective date, must appoint the first members of the committee within 12 months after:

The effective date; or

A company that is incorporated on or after the effective date, must constitute a social and ethics

committee and appoint its first members within one year after:

Its date of incorporation, in the case of a state owned company;

The date it first became a listed public company.

A social and ethics committee must comprise not less than three directors or prescribed officers, at least

one of whom must be a director who is not involved in the day-to-day management of the company‟s

business, and must not have been so involved within the previous three financial years.

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AUDIT COMMITTEES (SECTION 94)

At each annual general meeting, a public company or state-owned company, or other company that has

voluntarily determined to have an audit committee, must elect an audit committee comprising of at least three

members, unless:

The company is a subsidiary of another company that has an audit committee; and

The audit committee of that other company will perform the functions on behalf of that subsidiary

company.

Each member of an audit committee of a company must:

Be a director of the company;

Not be involved in the day-to-day management of the company‟s business, or have been so involved at

any time during the previous financial year;

A prescribed officer, or full-time employee, or have been such an officer or employee at any time during

the previous three financial years; or

A material supplier or customer of the company, such that a reasonable and informed third party would

conclude in the circumstances that the integrity, impartiality or objectivity of that director is compromised

by that relationship; and

Not be related to any person who falls within any of the above criteria.

The Minister may prescribe minimum qualification requirements for members of an audit committee as

necessary to ensure that any such committee, taken as a whole, comprises persons with adequate relevant

knowledge and experience to equip the committee to perform its functions.

An audit committee of a company has the following duties:

To nominate, for appointment as auditor, a registered auditor who, is independent of the company;

BOARD COMMITTEES (KING III)

Public and state-owned companies must appoint an audit committee.

The audit and remuneration committees should be chaired by an independent non-executive director.

The nomination committee should comprise of the board chairman and non-executive directors only, of

whom the majority should be independent.

All members of the remuneration committee should be non-executive directors, of which the majority

should be independent.

External advisors and executive directors should attend committee meetings by invitation.

Committees should be free to take independent advice at the cost of the company.

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To determine the fees to be paid to the auditor and the auditor‟s terms of engagement;

To ensure that the appointment of the auditor complies with the provisions of this Act and any other

legislation relating to the appointment of auditors;

To determine the nature and extent of any non-audit services that the auditor may provide to the

company, or that the auditor must not provide to the company, or a related company;

To pre-approve any proposed agreement with the auditor for the provision of non-audit services to the

company;

To prepare a report, to be included in the annual financial statements for that financial year:

○ Describing how the audit committee carried out its functions;

○ Stating whether the audit committee is satisfied that the auditor was independent of the company;

and

○ Commenting in any way the committee considers appropriate on the financial statements, the

accounting practices and the internal financial control of the company.

To receive and deal appropriately with any concerns or complaints, whether from within or outside the

company, or on its own initiative;

To make submissions to the board on any matter concerning the company‟s accounting policies, financial

control, records and reporting; and

To perform other functions determined by the board, including the development and implementation of a

policy and plan for a systematic, disciplined approach to evaluate and improve the effectiveness of risk

management, control, and governance processes within the company.

KING III

Listed and state-owned companies must establish an audit committee.

All members of the audit committee should be independent non-executive directors.

The audit committee should consist of at least three members.

The chairman of the board should not be the chairman of the audit committee.

The board should elect the chairman of the audit committee.

The chairman of the audit committee should be present at the Annual General Meeting.

The audit committee should:

Meet at least twice a year;

Regulation 42: Qualifications for members of audit committees

At least one–third of the members of a company‟s audit committee at any particular time must have academic

qualifications, or experience, in economics, law, corporate governance, finance, accounting, commerce,

industry, public affairs or human resource management.

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Meet with internal and external auditors at least once a year without management being present;

Review and comment on the financial statements;

Approve the internal audit plan;

Nominate the external auditor;

Approve the terms of engagement and remuneration for the external audit engagement;

Monitor and report on the independence of the external auditor;

Define a policy for non-audit services provided by the external auditor and must approve the contracts for non-audit services;

Be informed of all reportable irregularities identified and reported by the external auditor.

BOARD, DIRECTORS AND PRESCRIBED OFFICERS (SECTION 66)

The board must comprise:

In the case of a private company, or a personal liability company, of at least one director; or

In the case of a public company, or a non-profit company, of at least three directors.

The MOI may specify a higher number.

The MOI in the case of a profit company other than a state-owned company, must provide for the election by

shareholders of at least 50% of the directors, and 50% of any alternate directors.

A person may not serve or continue to serve as an ex- officio director of a company, despite holding the relevant

office, title, designation or similar status, if that person is or becomes ineligible or disqualified.

The election or appointment of a person as a director is a nullity if, at the time of the election or appointment, that

person is ineligible or disqualified.

Except to the extent that the MOI provides otherwise, the company may pay remuneration to its directors for

their service as directors.

Remuneration may be paid only in accordance with a special resolution approved by the shareholders within the

previous two years.

Any failure at any time to have the minimum number of directors required by the Act or the MOI, does not limit or

negate the authority of the board, or invalidate anything done by the board or the company.

Unless the MOI provides otherwise, the board may appoint a person who satisfies the requirements for election

as a director to fill any vacancy and serve as a director on a temporary basis until the vacancy has been filled,

and during that period any person so appointed has all of the powers, functions and duties, and is subject to all

of the liabilities, of any other director of the company.

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ELECTION OF DIRECTORS (SECTION 68)

Each director of a company, other than the first directors, must be elected by the persons entitled to exercise

voting rights in such an election, to serve for an indefinite term, or for a term as set out in MOI.

Unless the MOI provides otherwise the election is to be conducted as a series of votes, each of which is on the

candidacy of a single individual to fill a single vacancy, with the series of votes continuing until all vacancies on

the board at that time have been filled.

KING III

Composition

The board must comprise a balance of executive and non-executive directors, with a majority of non-executive

directors.

The majority of the non-executive directors should be independent.

Directors must be appointed through a formal process. The Nomination Committee assists with the process of

identifying suitable candidates to be proposed to the shareholders.

As a minimum, two executive directors should be appointed to the board, being the chief executive officer (CEO)

and the director responsible for the finance function. For listed companies, a financial director must be appointed

to the board effective from June 2009.

At least one third of non-executive directors should retire by rotation at the company's AGM or other general

meetings. These retiring board members may be re-elected, provided they are eligible.

The memorandum of incorporation of the company should allow the board to remove the CEO as an executive

director on the board. Shareholder approval is not deemed necessary for these decisions.

Any independent non-executive directors serving more than 9 years should be subject to a rigorous review of

his/her independence.

The board should include a statement in the integrated report regarding the assessment of the independence of

the independent non-executive directors.

Independent non-executive director

An independent non-executive director is a non-executive director who:

Is not a representative of a shareholder who has the ability to control or significantly influence

management;

Does not have a direct or indirect interest in the company (including any parent or subsidiary in a

consolidated group with the company) which is either material to the director or to the company. A

holding of five percent or more is considered material;

Has not been employed by the company or the group of which he/she currently forms part in any

executive capacity for the preceding three financial years;

Is not a member of the immediate family of an individual who is, or has been in any of the past

three financial years, employed by the company, or the group in an executive capacity;

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Is not a professional adviser to the company or the group, other than as a director;

Is free from any business or other relationship which could be seen to interfere materially with the

individual's capacity to act in an independent manner;

Does not receive remuneration contingent upon the performance of the company.

The chairman

The chairman should be appointed by the board on an annual basis and should be independent.

If the board appoints a chairman who is a non-executive director but is not independent, this should be disclosed

in the integrated report, together with the reasons and justifications for it.

The CEO should not become the chairman of the company.

With regards to additional roles of the chairman on committees:

The chairman should not be a member of the audit committee;

The chairman should not chair the remuneration committee, but may be a member of it;

The chairman should be a member of the nomination committee and may also be its chairman;

and

The chairman should not chair the risk committee but may be a member of it.

The chief executive officer

The board should appoint the Chief Executive Officer.

The CEO should not be a member of the remuneration, audit or nomination committees, but should attend by

invitation.

CEO‟s should recuse themselves when conflicts of interest arise, particularly when their performance and

remuneration are discussed.

Appointment of board members

Directors should be appointed through a formal process.

Shareholders are ultimately responsible for the composition of the board.

Boards should ascertain whether potential directors are competent.

Background and reference checks should be performed before the nomination and appointment of directors.

It is also important to ensure that new directors have not been declared delinquent nor serving probation.

The nomination committee should play a role in this process.

Training and development of directors

Training and development of directors should be conducted through formal processes.

The board should establish a formal orientation programme to familiarise incoming directors with the company's

operations, senior management and its business environment, and to introduce them to their fiduciary duties and

responsibilities.

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New directors with no or limited board experience should receive development and education on their duties,

responsibilities, powers and potential liabilities.

Inexperienced directors should be developed through mentorship programmes.

Continuing professional development programmes should be implemented.

Directors should receive regular briefings on matters relevant to the business of the company, changes in laws

and regulations applicable to the business of the company, including accounting standards and policies, and the

environment in which it operates.

Performance assessment

The performance of the board, its committees and the individual directors should be evaluated annually.

The chairman may lead the overall performance evaluation of the board, its individual members and the

company secretary, although independent performance appraisals should be considered.

The board should discuss the board evaluation results at least once a year.

The board should state in the integrated report that the appraisals of the board and its committees have been

conducted.

The same principles adopted in the evaluation of the board should be applied to the board committees‟,

chairman and members.

The nomination of a director at the AGM should only occur after the proper evaluation of the performance and

attendance of the director at relevant meetings.

The chairman should not be present when his/her performance is discussed by the board.

Remuneration of directors

Companies should remunerate fairly and responsibly.

The remuneration committee should assist the board in its responsibility for setting and administering

remuneration policies.

The company‟s policy of remuneration should be approved by shareholders in a general meeting. Shareholders

should pass a non-binding advisory vote on the company‟s yearly remuneration policy.

The board is responsible for determining the remuneration of executive directors.

These decisions need not be approved by shareholders.

Non-executive director fees, including committee fees, should comprise of a retainer, where considered

desirable, which may vary according to factors including the level of expertise of each director, as well as an

attendance fee per meeting.

Non-executive directors should not receive incentive awards geared to share price or corporate performance.

Non-executive fees should be approved by shareholders in advance.

Annual bonuses should clearly relate to performance against annual objectives consistent with long-term value

for shareholders.

Contracts should not commit companies to pay on termination arising from failure.

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Shareholders should approve in advance all long-term share-based and other incentive schemes or any

substantive changes to existing schemes.

Participation in share incentive schemes should be restricted to genuine employees and executive directors.

Non-executive directors should not receive share options.

The remuneration report should include:

All benefits paid to directors;

The salaries of the three most highly paid employees who are not directors;

The policy on base pay;

Participation in share incentive schemes;

The use of benchmarks;

Incentive schemes to encourage retention;

Material payments that are ex-gratia in nature;

Policies regarding executive employment; and

The maximum expected potential dilution as a result of incentive awards.

Meetings

The board must meet at least four times per year.

Additional meetings may be scheduled at the instance of a board member.

The chairman may meet with the CEO and the CFO or the company secretary prior to a board meeting to

discuss important issues and agree on the agenda.

All directors should be individuals of integrity and courage, and have the relevant skill and experience to bring

judgment to bear on the business of that company.

DIRECTORS CONDUCT (SECTION 76)

A director of a company must:

Not use the position of director, or any information obtained while acting in the capacity of a director:

○ To gain an advantage for the director, or for another person, other than the company, or a wholly-

owned subsidiary of the company; or

○ To knowingly cause harm to the company or a subsidiary of the company.

Communicate to the board at the earliest practicable opportunity any information that comes to the

director‟s attention, unless the director reasonably believes that the information is:

○ Immaterial to the company; or

○ Generally available to the public, or known to the other directors; or

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○ Is bound not to disclose that information by a legal or ethical obligation of confidentiality.

A director of a company must exercise the powers and perform the functions of director:

In good faith and for a proper purpose;

In the best interests of the company; and

With the degree of care, skill and diligence that may reasonably be expected of a person:

○ Carrying out the same functions in relation to the company as those carried out by that director;

and

○ Having the general knowledge, skill and experience of that director.

In respect of any particular matter arising in the exercise of the powers or the performance of the functions of

director, a particular director of a company will have satisfied the above if:

The director has taken reasonably diligent steps to become informed about the matter;

The director had no material personal financial interest in the subject matter of the decision, and had no

reasonable basis to know that any related person had a personal financial interest in the matter; or

The director disclosed the interest in advance; and

The director made a decision, or supported the decision of a committee or the board, with regard to that

matter, and the director had a rational basis for believing, and did believe, that the decision was in the

best interests of the company.

A director is entitled to rely on:

One or more employees of the company whom the director reasonably believes to be reliable and

competent in the functions performed or the information, opinions, reports or statements provided;

Legal counsel, accountants, or other professional persons retained by the company, the board or a

committee as to matters involving skills or expertise that the director reasonably believes are matters:

○ Within the particular person‟s professional or expert competence; or

○ As to which the particular person merits confidence.

A committee of the board of which the director is not a member, unless the director has reason to believe

that the actions of the committee do not merit confidence.

KING III

The governance of risk

The board should be responsible for the governance of risk.

The board should:

Approve a risk management policy, and the implementation thereof should be reviewed at least

once a year;

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Set the levels of risk tolerance once a year;

Disclose its view on the effectiveness of the risk management process in the integrated report.

The board should appoint a committee responsible for risk that have as its member‟s executive and non-

executive directors, members of senior management and independent risk management experts.

The risk committee must:

Have a minimum of three members;

Convene at least twice per year;

Be evaluated once a year by the board.

Undue, unexpected or unusual risks should be disclosed in the integrated report.

The governance of information technology

The board should be responsible for IT governance and place it on the board agenda.

The board should:

Ensure that an IT charter and policies are established and implemented;

Receive independent assurance on the effectiveness of the IT internal controls.

Management should be responsible for the implementation of the structures, processes and mechanisms.

The CEO should appoint a Chief Information Officer responsible for the management of IT.

The board should ensure that the company complies with IT laws and that IT related rules, codes and standards

are considered.

Compliance with laws, rules, codes and standards

The board should ensure that the company complies with applicable laws, codes and standards.

Compliance should be a regular item on the agenda of the board.

The board should disclose details in the integrated report on how it discharged its responsibility to establish an

effective compliance framework and processes.

The integrated report should include details of material or often repeated instances of non-compliance by either

the company or its directors.

An independent, suitable and skilled compliance officer may be appointed.

Governing stakeholder relationships

The gap between stakeholder‟s perceptions and the performance of the company should be managed and

measured to enhance or protect the company‟s reputation.

The board should identify important stakeholder groupings.

Management should develop a strategy and formulate policies for the management of relationships with each

stakeholder grouping.

Shareholders should be encouraged to attend the AGM‟s.

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The board should disclose in its integrated report the nature of the company‟s dealings with stakeholders and

the outcomes of these dealings.

The board must ensure that minority shareholders are protected.

Communications with stakeholders should be in clear and understandable language.

The board should disclose in the integrated report the number and reasons for refusals of requests of

information that were lodged with the company in terms of the Protection of Access to Information Act, 2000.

The board should adopt formal dispute resolution processes for internal and external disputes.

LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS (SECTION 77)

A director may be held liable in accordance with the principles of the common law relating to:

Breach of a fiduciary duty, for any loss, damages or costs sustained by the company as a consequence

of any breach by the director of a duty; or

Delict for any loss, damages or costs sustained by the company as a consequence of any breach by the

director of any provision of this Act and the MOI.

A director is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence

of the director having:

Acted in the name of the company, signed anything on behalf of the company, or purported to bind the

company or authorise the taking of any action by, or on behalf of the company, despite knowing that the

director lacked the authority to do so;

Acquiesced in the carrying on of the company‟s business despite knowing that it was being conducted

recklessly;

Been a party to an act or omission by the company despite knowing that the act or omission was

calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent

purpose;

Signed, consented to, or authorised, the publication of:

○ Any financial statements that were false or misleading in a material respect; or

○ A prospectus, or a written statement, that contained an untrue statement or a statement to the

effect that a person had consented to be a director of the company, when no such consent had

been given.

Been present at a meeting, or participated in the making of a decision, and failed to vote against:

○ The issuing of any unauthorised shares;

○ The issuing of any unauthorised securities;

○ The granting of unauthorised options to any person;

○ The provision of financial assistance to any person for the acquisition of securities of the company,

despite knowing that the provision of financial assistance was inconsistent with the provisions of

section 44 and the MOI;

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○ The provision of financial assistance to a director, despite knowing that the provision of financial

assistance was inconsistent with the provisions of section 45 the MOI;

○ A resolution approving a distribution, despite knowing that the company does not satisfy the

solvency and liquidity test; and

○ The acquisition by the company of any of its shares, or the shares of its holding company, despite

knowing that the acquisition was contrary to section 46 or 48; or

○ An allotment by the company, despite knowing that the allotment was contrary to any provision of

Chapter 4.

The company or any director who has been or may be held liable may apply to a court for an order setting aside

the decision of the board.

The liability of a person is joint and several with any other person who is, or may be held liable for the same act.

Proceedings to recover any loss, damages or costs for which a person is, or may be held liable may not be

commenced more than three years after the act or omission that gave rise to that liability.

Any person who would be liable is jointly and severally liable with all other such persons to pay the costs of all

parties in the court, unless the proceedings are abandoned and to restore to the company any amount

improperly paid by the company as a consequence of the impugned act.

In any proceedings against a director, other than for wilful misconduct or wilful breach of trust, the court may

relieve the director, either wholly or partly, from any liability, if it appears that the director has acted honestly and

reasonably.

FINANCIAL ASSISTANCE FOR SUBSCRIPTION OF SECURITIES (SECTION 44)

To the extent that the MOI provides otherwise, the board may authorise the company to provide financial

assistance by way of a loan, guarantee, the provision of security or otherwise to any person for the purpose of,

or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or

a related or inter-related company, or for the purchase of any securities of the company or a related or inter-

related company.

Despite any provision of the MOI, the board may not authorise any financial assistance, unless:

The particular provision of financial assistance is:

○ Pursuant to an employee share scheme; or

○ Pursuant to a special resolution of the shareholders, adopted within the previous two years, which

approved such assistance, either for the specific recipient, or generally for a category of potential

recipients, and the specific recipient falls within that category; and

The board is satisfied that:

○ Immediately after providing the financial assistance, the company would satisfy the solvency and

liquidity test; and

○ The terms under which the financial assistance is proposed to be given, are fair and reasonable to

the company.

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A decision by the board of a company to provide financial assistance, or an agreement with respect to the

provision of any such assistance, is void to the extent that the provision of that assistance would be inconsistent

with:

This section; or

A prohibition, condition or requirement in the MOI.

If a resolution or an agreement is void a director of a company is liable for loss, damages or costs if the director:

Was present at the meeting when the board approved the resolution or agreement, or participated in the

making of such a decision; and

Failed to vote against the resolution or agreement, despite knowing that the provision of financial

assistance was inconsistent with this section or a prohibition, condition or requirement in the MOI.

LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS (SECTION 45)

In this section, „„financial assistance‟‟:

Includes lending money, guaranteeing a loan, or other obligation, and securing any debt or obligation; but

Does not include:

○ Lending money in the ordinary course of business by a company whose primary business is the

lending of money;

○ An accountable advance to meet:

― Legal expenses in relation to a matter concerning the company; or

― Anticipated expenses to be incurred by the person on behalf of the company; or

― An amount to defray the person‟s expenses for removal at the company‟s request.

Except to the extent that the MOI provides otherwise, the board may authorise the company to provide direct or

indirect financial assistance to a director or prescribed officer of the company or of a related or inter-related

company, or to a related or inter-related company or corporation, or to a member of a related or inter-related

corporation, or to a person related to any such company, corporation, director, prescribed officer or member.

Despite any provision of the MOI to the contrary, the board may not authorise any financial assistance, unless:

The particular provision of financial assistance is:

○ Pursuant to an employee share scheme; or

○ Pursuant to a special resolution of the shareholders, adopted within the previous two years, which

approved such assistance either for the specific recipient, or generally for a category of potential

recipients, and the specific recipient falls within that category; and

○ The board is satisfied that immediately after providing the financial assistance, the company would

satisfy the solvency and liquidity test.

The board must ensure that any conditions or restrictions respecting the granting of financial assistance set out

in the company‟s Memorandum of Incorporation have been satisfied.

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If the board adopts a resolution, the company must provide written notice of that resolution to all shareholders,

unless every shareholder is also a director of the company, and to any Trade Union representing its employees:

Within 10 business days after the board adopts the resolution, if the total value of all loans, debts,

obligations or assistance contemplated in that resolution, together with any previous such resolution

during the financial year, exceeds one-tenth of 1% of the company‟s net worth at the time of the

resolution; or

Within 30 business days after the end of the financial year, in any other case.

A decision by the board of a company to provide financial assistance, or an agreement with respect to the

provision of any such assistance, is void to the extent that the provision of that assistance would be

inconsistent with:

This section; or

A prohibition, condition or requirement in the MOI.

If a resolution or an agreement is void, a director of a company is liable for loss, damages or costs if the

director:

Was present at the meeting when the board approved the resolution, or agreement, or participated in the

making of such a decision; and

Failed to vote against the resolution or agreement, despite knowing that the provision of financial

assistance was inconsistent with this section, or a prohibition, condition or requirement in the MOI.

DISTRIBUTIONS (SECTION 46)

A company must not make any proposed distribution unless the distribution:

Is pursuant to an existing legal obligation of the company, or a court order; or

The board of the company, by resolution, has authorised the distribution;

It reasonably appears that the company will satisfy the solvency and liquidity test immediately after

completing the proposed distribution; and

The board of the company, by resolution, has acknowledged that it has applied the solvency and liquidity

test, and reasonably concluded that the company will satisfy the solvency and liquidity test immediately

after completing the proposed distribution.

If the distribution contemplated in a particular board resolution, court order or existing legal obligation has

not been completed within 120 business days the board must reconsider the solvency and liquidity test

with respect to the remaining distribution to be made pursuant to the original resolution, order or

obligation. Despite any law, order or agreement to the contrary, the company must not proceed with or

continue with any such distribution unless the board adopts a further resolution.

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SHAREHOLDER RESOLUTIONS (SECTION 65)

Every resolution of shareholders is either an ordinary resolution or a special resolution.

For an ordinary resolution to be approved, it must be supported by more than 50% of the voting rights.

Except for an ordinary resolution for the removal of a director, the MOI may require a higher percentage of voting

rights to approve an ordinary resolution, provided that there must at all times be a margin of at least 10

percentage points between the approval of an ordinary resolution, and a special resolution.

For a special resolution to be approved, it must be supported by at least 75% of the voting rights.

The MOI may permit a different percentage of voting rights to approve any special resolution provided that there

must at all times be a margin of at least 10 percentage points between the approval of an ordinary resolution,

and a special resolution.

A special resolution is required to:

Amend the MOI;

Ratify a consolidated revision of a MOI;

Ratify actions by the company or directors in excess of their authority;

Approve an issue of shares or grant of rights in the circumstances contemplated in section 41 (1);

Approve an issue of shares or securities as contemplated in section 41 (3);

Authorise the board to grant financial assistance in the circumstances contemplated in section

44 (3) (a) (ii) or 45 (3) (a) (ii);

Approve a decision of the board for re-acquisition of shares in the circumstances contemplated in section

48 (8);

Authorise the basis for compensation to directors of a profit company;

Approve the voluntary winding up of the company;

Approve the winding up a company;

Approve an application to transfer the registration of the company to a foreign;

Approve any proposed fundamental transaction.

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SECOND-HAND GOODS ACT, 6 OF 2009

ARRANGEMENTS OF SECTIONS

Chapter 1 – Interpretation (Section 1)

Chapter 2 – Registration (Sections 2 to 15)

Chapter 3 – Accreditation (Sections 16 to 20)

Chapter 4 – Dealers (Sections 21 to 23)

Chapter 5 – Motor Vehicles (Section 24)

Chapter 6 – Controlled Metals (Section 25)

Chapter 7 – Communication Equipment (Section 26)

Chapter 8 – Powers of Police Official (Sections 27 to 31)

Chapter 9 – General Provisions (Sections 32 to 45)

Schedule 1 – Goods

Schedule 2 – Controlled Metals

Schedule 3 – Offences and Penalties

Schedule 4 – Laws Repealed

PURPOSE OF THE ACT

To regulate the business of dealers in second-hand goods and pawnbrokers, in order to combat trade in

stolen goods.

To promote ethical standards in the second-hand goods trade.

CHAPTER 1- DEFINITIONS

Acquire

Acquire by any means.

Includes importing into the Republic.

Antique

Goods representing a previous era in human society and which are collected or desirable because of

age, rarity, condition, utility or other unique features

Certificate

A certificate of registration issued and in force under this Act.

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Includes any amendment thereof.

Communication equipment

Any wireless mobile communication equipment with IMEI capable of using SIM, including cellular

telephones, telephones and two-way radios.

Includes accessories of such equipment.

Controlled metal

Copper, Aluminium, Zinc, Chrome, Lead, White metal, Nickel, Tungsten, Tin, Ferrovanadium,

Ferrosilicon, Ferrochrome, Brass, Bronze, Cobalt.

Precious metals as defined in the Precious Metals Act, 2005 (Act 27 of 2005), or any article consisting

wholly or principally of any of those metals.

Dealer

A person who carries on a business of dealing in second-hand goods.

Includes a scrap metal dealer and a pawnbroker.

Goods

Jewellery, including unwrought precious metal as defined in the Precious Metals Act, 2005 (Act 27 of

2005).

Agricultural implements, including tractors, ploughs and harvesters, irrigation equipment or any part or

accessory thereof.

Bicycles or any part or accessory thereof.

Household and office equipment.

Factory equipment and machinery or any part or accessory thereof.

Tyres of any vehicle or motorcycle.

Communication equipment or any part or accessory thereof.

Photographic or optical instruments or any part or accessory thereof.

Any controlled metal, or any wrought article, or any article or substance consisting wholly or principally of

one or more of such metals.

Antique goods.

Motor vehicle or any part or accessory thereof.

Vehicles or any part or accessory thereof.

Sporting equipment.

Valuables.

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Books.

Shop-fitting equipment.

Does not include firearms or ammunition as defined in the Firearms Control Act, 2000 (Act 60 of 2000),

books or clothing.

Household and office equipment

Includes communication equipment, electric and electronic equipment and appliances, electronic software,

furniture, gardening equipment, tools, books, valuables, clothing and works of art.

Management

Includes the chief executive officer, chief operating officer, owner or manager of a registered dealer who is

responsible for the day to day control, direction or supervision of the business of that dealer at the premises in

question.

Pawnbroker

Person who:

Engages in the business of lending or advancing money on the deposit or pledge of goods;

Lends money upon goods, wares or merchandise pledged, stored or deposited as collateral security; or

Otherwise engages in pawn transactions within the meaning of the National Credit Act, 2005 (Act 34 of

2005).

Person

Includes a trust and a business trust.

Premises

Includes land, any building, structure, vehicle, conveyance, ship, boat or aircraft.

Recycle

To melt, smelt, granulate, shred, dismantle, sort, grade, cut or prepare, either by hand or by the use of

specialised plant, machinery and equipment, for use by consuming works such as foundries, mills, smelters,

refiners and manufacturers.

Second-Hand Goods

Goods which have been in use by a person other than the manufacturer or producer thereof or a person dealing

therewith for such manufacturer or producer in the course of business.

Does not include goods with a value of less than R100.

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CHAPTER 2- REGISTRATION

OBLIGATION TO REGISTER

Every person who carries on a business as a dealer must be registered. A person other than a natural person

may only be registered if a natural person, is appointed to manage, and be responsible for, the business of the

dealer.

APPLICATION FOR REGISTRATION

An application for registration must be made to the National Commissioner and must be accompanied by the

prescribed documents. The National Commissioner may require the applicant to provide further information

necessary for processing the application. If an applicant intends to conduct business from more than one

premises, or where second-hand goods are stored on additional premises, such applicant must apply for

registration in respect of each of those premises.

The National Commissioner may require the applicant to furnish additional information or particulars, and may

require that the applicant's fingerprints be taken.

REFUSAL TO REGISTER

If a dealer fails to comply with the requirements for an application, the National Commissioner must refuse the

application and inform the dealer of that fact.

Before refusing the application, the National Commissioner must:

Give the dealer written notice of the National Commissioner's intention to refuse the application;

Give the dealer 30 days to submit written representations as to why the National Commissioner should

not make the intended decision; and

Duly consider any such representations and the facts pertaining to the matter.

EFFECT OF REGISTRATION

Where a dealer is registered, the National Commissioner must issue the prescribed certificate of registration to a

dealer, authorising the dealer to carry on business:

In respect of the classes of second-hand goods specified on the certificate;

On the premises specified on the certificate; and

Subject to such of the prescribed conditions as the National Commissioner may impose.

The National Commissioner must issue a certificate for each premises on which the dealer may conduct

business.

If a person other than a natural person carries on business as a dealer, the certificate must be issued in the

name of the person.

Registration remains valid for a period of five years from the date the certificate is issued.

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APPLICATION FOR AMENDMENT OF CERTIFICATE

The holder of a certificate of registration must notify the National Commissioner in writing within 30 days if:

There is any change with regard to any information that was submitted in respect of the application for

registration;

There is a change in the control or ownership of the dealer; or

There is any change that impacts on the ability of the dealer to meet all or any of the requirements for its

registration in terms of this Act.

RENEWAL OF REGISTRATION

A registered dealer who intends to renew registration must apply for renewal not more than 180 days and at

least 90 days before the date of termination of registration.

TRANSFER OF CERTIFICATE

A certificate may not be transferred. A registered dealer who wishes to transfer the business to which the

registration relates, may only transfer such business to another registered dealer.

The certificate of the dealer transferring the business must be surrendered to the National Commissioner upon

the issue of a new certificate.

If a registered dealer dies, is declared by any court to be incapable of managing his or her own affairs or

becomes mentally ill, or if the estate of such dealer is sequestrated or if such dealer is liquidated, the executor,

curator, administrator, trustee or liquidator of such person, during the currency of the certificate of registration

and without formal transfer of the certificate, conduct the business in question on such premises, either

personally or through an agent approved by the National Commissioner in writing.

For the period pending the appointment of such executor, curator, administrator, trustee or liquidator, the person

managing the affairs of the dealer concerned must, for the purposes of this subsection, be regarded as being

such a dealer's executor, curator, administrator, trustee or liquidator.

DISQUALIFICATION

A person is disqualified from being registered as a dealer if such person:

Has in the preceding five years, in the Republic or elsewhere, been sentenced to imprisonment without

the option of a fine in respect of any offence of fraud, theft or corrupt activities as referred to in the

Prevention and Combating of Corrupt Activities Act, 2004 (Act 12 of 2004), or any contravention of the

Corruption Act, 1992 (Act 94 of 1992), or the commission of any other offence of which dishonesty is an

element;

Has in the preceding 10 years been convicted of an offence in terms of this Act or the previous Act,

irrespective of the sentence imposed, and was within five years after the conviction again convicted of an

offence in terms of any of the said Acts and sentenced to a fine exceeding R1 000;

Is an unrehabilitated insolvent;

Is under 18 years;

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Does not permanently reside in the Republic; or

Is by virtue of any other law disqualified from carrying on a business.

DISPLAY OF CERTIFICATE

Where a certificate has been issued in terms of this Act, the original certificate must be:

Displayed in a prominent place clearly visible to the public on the premises for which a certificate has

been issued; and

Maintained in such a state that it can be produced undamaged and in a legible condition.

CHAPTER 3- ACCREDITATION

FUNCTIONS OF ACCREDITED DEALERS' ASSOCIATIONS

An accredited dealers' association must:

Establish its members in different categories of dealers taking into account the classes of second-hand

goods that the members are dealing in;

Establish and maintain minimum legal and ethical standards, and may establish different standards with

regard to the different categories of dealers, which may not be of a lower standard than is required under

this Act;

Inspect any business practice, registers, stock and business premises of its members;

Make recommendations to the National Commissioner in support of applications for registration;

Assist its members with research and development regarding matters of interest; and

Advise the National Commissioner, when requested to do so by the National Commissioner, on industry

standards and technological developments in the industry which may affect the application of this Act.

ACCREDITATION

The National Commissioner may accredit a dealers' association.

MEMBER REGISTERS

Every accredited association must:

Keep a register of all members; and

Submit an annual report to the National Commissioner.

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CHAPTER 4- DEALERS

RECORDS BY DEALERS

A dealer must keep a register and record in the register the prescribed particulars regarding every acquisition or

disposal of second-hand goods.

The particulars must at least include:

Particulars in respect of the identity of the person from whom the second-hand goods are acquired,

including:

○ The person's full names, contact address and contact telephone number;

○ The manner in which the person's identity was verified; and

○ The person's identity number.

A description of the second-hand goods and serial number or distinguishing mark or feature of the

second-hand goods;

The purchase price paid by the dealer;

The number assigned to the second-hand goods by the dealer;

The name and signature of the person who conducted the transaction on behalf of the dealer; and

The date and time of the transaction, the date on which the second-hand goods were sold or an account

of how and when the goods were otherwise disposed of.

A dealer must obtain and keep a copy of the identity document or passport.

A dealer must retain a register and copies of the documents for a period of not less than five years, calculated

from the date of the relevant transaction.

FALSE INFORMATION AND STOLEN GOODS

If a dealer suspects, or on reasonable grounds should suspect, that:

Any name, address or document furnished to the dealer is false;

Goods or goods for pawn offered to such a dealer are stolen goods; or

The appearance or aspects of an item offered to such dealer has been tampered with or there was an

attempt to alter the appearance or aspects thereof in order to conceal the identity of the item,

such dealer must immediately report the matter to a police official on duty at the police station in whose area the

dealer carries on business.

Upon receipt of a report the police official involved must immediately provide the person who made the report

with the prescribed acknowledgement of receipt.

A person required to make a report concerning a suspicion that any other person intends to commit or has

committed an offence, may not continue with and carry out any transaction to which such a suspicion relates.

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The police official taking down a report, must immediately provide the designated police officer with a copy of

such report, together with any particulars regarding the registering of any investigation dockets arising from such

report.

RESTRICTIONS ON DEALERS AND PAWNBROKERS

No dealer may:

Acquire or accept in pawn goods from any person under the age of 18;

Store goods elsewhere than on the premises for which a certificate has been issued;

Take into his or her possession goods unless he or she is convinced on reasonable grounds that the

seller of the goods is the owner or titleholder thereof or is duly authorised to dispose thereof;

Deliver goods acquired by him or her to a person or change the form or alter the appearance thereof until

after the expiration date of a period of seven days from the date of acquisition thereof; or

Accept in pawn any firearms or ammunition.

CHAPTER 5- MOTOR VEHICLES

MOTOR VEHICLE RECORDS

A dealer dealing in second-hand motor vehicles must also record in the prescribed register the particulars

regarding every acquisition or disposal of a motor vehicle.

The particulars are:

The vehicle identification number (VIN), and the chassis and engine number;

The odometer reading;

The exterior and trim colour; and

Any distinguishing mark or feature, such as microdot particulars.

A person acquiring or disposing of a motor vehicle from or to a dealer must furnish such dealer with:

His or her full name;

His or her physical address;

His or her original identity document or passport as proof of his or her identity; and

Proof of registration or deregistration of the motor vehicle.

A dealer must obtain and keep a copy of the identity document or passport and must obtain and keep proof of

registration or deregistration for a period of not less than five years, calculated from the date of the relevant

transaction.

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CHAPTER 6- CONTROLLED METALS

OBLIGATION TO REGISTER AS RECYCLER

Every dealer who engages in the business of recycling any controlled metal, must apply to be registered as a

recycler, in addition to having to be registered in terms of section 2.

An application for registration must be made to the National Commissioner and must be accompanied by the

prescribed documents.

The National Commissioner must register the applicant as a recycler and issue the prescribed certificate.

No person may:

Have in his or her possession any apparatus which can be used for the recycling of any controlled metal

or any article or substance containing any controlled metal, unless;

Such person is registered as a recycler; or

In the case of precious metals, such a person is authorised to possess and recycle precious metals under

the Precious Metals Act, 2005 (Act 37 of 2005), or any other applicable legislation;

Acquire or dispose of any cable consisting of controlled metal of which the cover has been burnt, unless

the seller thereof is able to provide a reasonable explanation for the burnt cover, and only after the matter

has been reported to a police official; or

Be in possession of any cable consisting of controlled metal of which the cover has been burnt, unless

such person is able to provide a reasonable explanation for the burnt cover.

If a recycler suspects, or on reasonable grounds should suspect, that the appearance or aspects of any scrap

metal offered to him or her has been tampered, or there was an attempt to alter the appearance or aspects

thereof in order to conceal the identity of the scrap metal, such recycler must make a report to a police official.

CHAPTER 7- COMMUNICATION EQUIPMENT

COMMUNICATION EQUIPMENT RECORDS

A dealer dealing in second-hand communication equipment must also record in the prescribed register the

particulars regarding every acquisition or disposal of communication equipment.

The particulars are:

A description of the communication equipment, including the make and model;

The communication equipment's IMEI number, where applicable; and

Any other distinguishing mark or feature, including any serial number.

A person acquiring communication equipment from or disposing of communication equipment to a dealer must

furnish such dealer, with his or her:

Full name;

Physical address; and

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Original identity document or passport as proof of his or her identity.

A dealer must obtain and keep a copy of the identity document or passport for a period of not less than five

years, calculated from the date of the relevant transaction.

CHAPTER 8- POWERS OF POLICE OFFICIALS

IDENTIFICATION BY POLICE OFFICIAL

A police official must identify himself or herself to the dealer, owner, employee or person in charge of the

premises in question, and must produce his or her appointment certificate issued by the National Commissioner.

ROUTINE INSPECTIONS

A police official may, during times when business activity in respect of second-hand goods is taking place, enter

the premises of any registered dealer in order to investigate compliance with this Act and require the dealer,

owner, an employee or the person in control of the premises to:

Produce the certificate of registration relating to that premises for inspection;

Produce any register, record, book or other document relating to the goods in or on the premises for

inspection or for the purposes of obtaining copies thereof or extracts there from;

Produce any goods found in or on such premises for examination; or

Explain any entry or absence of any entry in any register, book, record or document found therein or

thereon.

If, upon any inspection, a police official discovers that any method of dealing, recording of transactions in

registers or storage that is being used is in contravention of this Act, the police official may:

Demand immediate discontinuation of the method; and

Afford the dealer a period of no more than seven days to rectify such method in order to ensure

compliance with the Act.

The dealer, owner, employee or person in charge of premises must assist the police official in the performance

of his or her functions under this Act.

A police official must conduct at least one comprehensive annual inspection of each registered premises, during

which the records must be examined.

On each occasion when a police official inspects a register, such police official must:

Sign his or her name immediately after the last entry in that register, and append his or her number and

rank and the date on which the inspection was conducted; or

Certify in the manner that the National Commissioner may from time to time direct, that the records were

inspected.

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ENTRY, SEARCH, SEIZURE AND SEAL-OFF

A police official, on the authority of a warrant issued may:

Enter any premises specified in that warrant;

Direct the person in control of or any person employed at the premises to:

○ Disclose any register, record, book, other document or information that pertains to the

investigation and is in the possession or under the control of that person; and

○ Render such assistance as the police official requires in order to enable such police official

to perform his or her functions under this Act;

Inspect any register, record, book or other document and make copies thereof or excerpts therefrom;

Examine any goods or other articles found on the premises;

Against the issue of a written receipt, seize records, books, documents or electronic data-storing devices

that may be used as evidence of a contravention of any provision of this Act; and

Seal or seal off the premises at, on or in which second-hand goods are found, in order to prevent a

person from conducting business in contravention of this Act.

A police official may not enter upon or search any premises without audibly demanding admission to the

premises and giving notice of the purpose of the entry, unless such police official is, on reasonable grounds, of

the opinion that such demand and notification will defeat the purpose of the search.

A police official may use such force as may reasonably be necessary to overcome resistance to the entry or

search.

Any entry and search may only be executed by day, unless the execution thereof by night is reasonable and

justifiable.

A police official may without a warrant enter upon any premises and search for, seize and remove anything if:

The person who is competent to do so consents to such entry, search, seizure and removal; or

There are reasonable grounds to believe that:

A warrant would be issued to the police official if he or she applied for such warrant; and

The delay in obtaining such warrant would defeat the purpose of the search.

A person from whom any book, record or document has been taken may, at his or her own expense and under

supervision of a police official, make copies thereof or excerpts therefrom.

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SCHEDULE 3- OFFENCES AND PENALTIES

MAXIMUM PERIOD OF IMPRISONMENT

Section 2(1) = 10 years

Section 3(2) = 10 years

Section 4 = 10 years

Section 5 = 10 years

Section 8(1) or (4) = 3 years

Section 10(2) or (6) = 3 years

Section 11 = 3 years

Section 12 = 3 years

Section 15 = 3 years

Section 21(1) = 10 years

Section 21(3), (4), (5), (6) or (7) = 5 years

Section 22(1) or (3) = 10 years

Section 23 = 10 years

Section 24(1) = 10 years

Section 24(3), (4) and (5) = 5 years

Section 25(1), (4) or (5) = 10 years

Section 26(1), (3) or (5) = 10 years

Section 28 = 10 years

Section 37 = 3 years

Section 43(1), (2) or (3) = 3 years

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TAX ADMINISTRATION ACT

GENERAL

PURPOSE OF ACT

The purpose of this Act is to ensure the effective and efficient collection of tax by:

Aligning the administration of the tax Acts to the extent practically possible;

Prescribing the rights and obligations of taxpayers and other persons to whom this Act applies;

Prescribing the powers and duties of persons engaged in the administration of a tax Act; and

Generally giving effect to the objects and purposes of tax administration.

ADMINISTRATION OF TAX ACTS

SARS is responsible for the administration of this Act under the control or direction of the Commissioner.

Administration of a tax Act means to:

Obtain full information in relation to:

○ Anything that may affect the liability of a person for tax in respect of a previous, current or future

tax period;

○ A taxable event; or

○ The obligation of a person (whether personally or on behalf of another person) to comply with a

tax Act.

Ascertain whether a person has filed or submitted correct returns, information or documents;

Establish the identity of a person for purposes of determining liability for tax;

Determine the liability of a person for tax;

Collect tax and refund tax overpaid;

Investigate whether an offence has been committed, and, if so to lay criminal charges; and

To provide the assistance that is reasonably required for the investigation and prosecution of tax offences

or related common law offences;

Enforce SARS‟ powers and duties under a tax Act to ensure that an obligation imposed by or under a tax

Act is complied with;

Perform any other administrative function necessary to carry out the provisions of a tax Act; and

Give effect to the obligation of the Republic to provide assistance under an international tax agreement.

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If SARS has, in accordance with an international agreement, received a request for:

Information, SARS may obtain the information requested for transmission to the competent authority of

the other country as if it were relevant material required for purposes of a tax Act and must treat the

information obtained as if it were taxpayer information;

The conservancy or the collection of an amount alleged to be due by a person under the tax laws of the

requesting country, SARS may deal with the request under the provisions of section 185; or

The service of a document which emanates from the requesting country, SARS may effect service of the

document as if it were a notice, document or other communication required under a tax Act to be issued,

given, sent or served by SARS.

APPLICATION OF ACT

This Act applies to every person who is liable to comply with a provision of a tax Act (whether personally or on

behalf of another person) and binds SARS.

If this Act is silent with regard to the administration of a tax Act and it is specifically provided for in the relevant

tax Act, the provisions of that tax Act apply.

In the event of any inconsistency between this Act and another tax Act, the other Act prevails.

PRACTICE GENERALLY PREVAILING

A practice generally prevailing is a practice set out in an official publication regarding the application or

interpretation of a tax Act.

Despite any provision to the contrary contained in a tax Act, a practice generally prevailing set out in an official

publication, other than a binding general ruling, ceases to be a practice generally prevailing if:

The provision of the tax Act that is the subject of the official publication is repealed or amended to an

extent material to the practice, from the date the repeal or amendment becomes effective;

A court overturns or modifies an interpretation of the tax Act which is the subject of the official publication to an

extent material to the practice from the date of judgment, unless:

The decision is under appeal;

The decision is fact-specific and the general interpretation upon which the official publication was based

is unaffected; or

The reference to the interpretation upon which the official publication was based was obiter dicta; or

The official publication is withdrawn or modified by the Commissioner, from the date of the official

publication of the withdrawal or modification.

POWERS AND DUTIES OF SARS AND SARS OFFICIALS

POWERS AND DUTIES

Powers and duties which are assigned to the Commissioner by this Act must be exercised by the Commissioner

personally but he or she may delegate such powers and duties.

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Powers and duties to be exercised by a senior SARS official must be exercised by:

The Commissioner;

A SARS official who has specific written authority from the Commissioner to do so; or

A SARS official occupying a post designated by the Commissioner for this purpose.

CONFLICT OF INTEREST

The Commissioner or a SARS official may not exercise a power or become involved in a matter, if:

The Commissioner or the official has or had, in the previous three years, a personal, family, social,

business, professional, employment or financial relationship presenting a conflict of interest; or

Other circumstances present a conflict of interest that will reasonably be regarded as giving rise to bias.

IDENTITY CARDS

SARS must issue an identity card to each SARS official.

When a SARS official exercises a power or duty the official must produce the identity card upon request by a

member of the public.

If the official does not produce the identity card, a member of the public is entitled to assume that the person is

not a SARS official.

REGISTRATION

REGISTRATION REQUIREMENTS

A person obliged to apply or who may voluntarily register with SARS must apply for registration within the period

provided for in a tax Act or, if no such period is provided for, 21 business days of so becoming obliged or within

the further period as SARS may approve in the prescribed form and manner.

A person applying for registration may be required to submit biometric information for the:

Proper identification of the person; or

Counteracting identity theft or fraud.

Where a taxpayer that is obliged to register with SARS fails to do so, SARS may register the taxpayer for one or

more tax types as is appropriate under the circumstances.

COMMUNICATION OF CHANGES IN PARTICULARS

A person who has been registered must communicate to SARS within 21 business days any change that relates

to:

Postal address;

Physical address;

Representative taxpayer;

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Banking particulars used for transactions with SARS;

Electronic address used for communication with SARS; or

Such other details as the Commissioner may require by public notice.

TAXPAYER REFERENCE NUMBER

SARS may allocate a taxpayer reference number in respect of one or more taxes to each person registered.

SARS may register and allocate a taxpayer reference number to a person who is not registered.

A person who has been allocated a taxpayer reference number by SARS must include the relevant reference

number in all returns or other documents submitted to SARS.

SARS may regard a return or other document submitted by a person to be invalid if it does not contain the

reference number and must inform the person accordingly if practical.

RETURNS AND RECORDS

SUBMISSION OF RETURN

A person required submitting or who voluntarily submits a return must do so:

In the prescribed form and manner; and

By the date specified in the tax Act.;

A return must contain the information prescribed by a tax Act or the Commissioner and be a full and true

return.

A return must be signed by the taxpayer or by the taxpayer‟s duly authorised representative and the person

signing the return is regarded for all purposes to be cognisant of the statements made in the return.

Non-receipt by a person of a return form does not affect the obligation to submit a return.

THIRD PARTY RETURNS

The Commissioner may by public notice require a person who employs, pays amounts to, receives amounts on

behalf of or otherwise transacts with another person or has control over assets of another person, to submit a

return with the required information in the prescribed form and manner and by the date specified in the notice.

STATEMENT CONCERNING ACCOUNTS

SARS may require a person who submits financial statements or accounts prepared by another person in

support of that person‟s submitted return, to submit a certificate or statement by the other person setting out the

details of:

The extent of the other person‟s examination of the books of account and of the documents from which

the books of account were written up; and

Whether or not the entries in those books and documents disclose the true nature of the transactions,

receipts, accruals, payments or debits.

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A person who prepares financial statements or accounts for another person must, at the request of that other

person, submit to that other person a copy of the certificate or statement.

DUTY TO KEEP RECORDS

The requirements to keep records for a tax period apply to a person who:

Has submitted a return for the tax period;

Is required to submit a return for the tax period and has not submitted a return for the tax period; or

Is not required to submit a return but has, during the tax period, received income, has a capital gain or

capital loss, or engaged in any other activity that is subject to tax or would be subject to tax but for the

application of a threshold or exemption.

Records need not be retained after a period of five years from the date of the submission of the return or five

years from the end of the relevant tax period.

FORM OF RECORDS KEPT OR RETAINED

The records, books of account, and documents must be kept or retained in their original form in an orderly

fashion and in a safe place, including electronic form.

INSPECTION OF RECORDS

The records, books of account and documents must at all reasonable times be open for inspection by a SARS

official in the Republic for the purpose of:

Determining compliance with the record and documentation requirements; or

An inspection, audit or investigation.

RETENTION PERIOD IN CASE OF AUDIT, OBJECTION OR APPEAL

If records are relevant to an audit or investigation which the person subject to the audit or investigation has been

notified of, or is aware of, or a person lodges an objection or appeal against an assessment or decision, the

person must retain the records until the audit is concluded or the assessment or the decision becomes final.

INFORMATION GATHERING

SELECTION FOR INSPECTION, VERIFICATION OR AUDIT

SARS may select a person for inspection, verification or audit on the basis of any consideration relevant for the

proper administration of a tax Act, including on a random or a risk assessment basis.

KEEPING TAXPAYER INFORMED

A SARS official involved in or responsible for an audit must provide the taxpayer with a report indicating the

stage of completion of the audit.

Upon conclusion of the audit or a criminal investigation, and where:

The audit or investigation was inconclusive, SARS must inform the taxpayer accordingly within 21

business days; or

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The audit identified potential adjustments of a material nature, SARS must within 21 business days, or

the further period that may be required based on the complexities of the audit, provide the taxpayer with

a document containing the outcome of the audit, including the grounds for the proposed assessment or

decision.

Upon receipt of the document the taxpayer must within 21 business days of delivery of the document, or the

further period requested by the taxpayer that may be allowed by SARS based on the complexities of the audit,

respond in writing to the facts and conclusions set out in the document.

The taxpayer may waive the right to receive the document.

The above does not apply if a senior SARS official has a reasonable belief that compliance with these

requirements would impede or prejudice the purpose, progress or outcome of the audit.

SARS may issue the assessment or make the decision resulting from the audit, and the grounds of the

assessment must be provided to the taxpayer within 21 business days of the assessment, or the further period

that may be required based on the complexities of the audit.

REFERRAL FOR CRIMINAL INVESTIGATION

If at any time before or during the course of an audit it appears that a person may have committed a serious tax

offence, the investigation of the offence must be referred to a senior SARS official responsible for criminal

investigations for a decision as to whether a criminal investigation should be pursued.

Relevant material gathered during an audit after the referral, must be kept separate from the criminal

investigation and may not be used in criminal proceedings instituted in respect of the offence.

The relevant material and files relating to the case must be returned to the SARS official responsible for the audit

if:

It is decided not to pursue a criminal investigation;

It is decided to terminate the investigation; or

After referral of the case for prosecution, a decision is made not to prosecute.

CONDUCT OF CRIMINAL INVESTIGATION

In the event that a decision is taken to pursue the criminal investigation of a serious tax offence, SARS may

make use of relevant material obtained prior to the referral.

Relevant information obtained during a criminal investigation may be used for purposes of audit as well as in

subsequent civil and criminal proceedings.

INSPECTIONS

A SARS official may without prior notice, arrive at a premise where the SARS official has a reasonable belief that

a trade or enterprise is being carried on and conduct an inspection to determine only:

The identity of the person occupying the premises;

Whether the person occupying the premises is registered for tax; or

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Whether the person is complying with the record and documentation requirements.

A SARS official may not enter a dwelling-house or domestic premises, except any part thereof used for the

purposes of trade, without the consent of the occupant.

REQUEST FOR RELEVANT MATERIAL

SARS may require the taxpayer or another person to, within a reasonable period, submit relevant material

(whether orally or in writing) that SARS requires.

A request by SARS for relevant material from a person other than the taxpayer is limited to the records

maintained or that should reasonably be maintained by the person in relation to the taxpayer.

A person receiving from SARS a request for relevant material must submit the relevant material to SARS at the

place and within the time specified in the request.

SARS may extend the period within which the relevant material must be submitted on good cause shown.

Relevant material required by SARS must be referred to in the request with reasonable specificity.

A senior SARS official may direct that relevant material be provided under oath or solemn declaration.

A senior SARS official may request relevant material for purposes of revenue estimation.

PRODUCTION OF RELEVANT MATERIAL IN PERSON

A senior SARS official may, by notice, require a person, whether or not chargeable to tax, to attend in person at

the time and place designated in the notice for the purpose of being interviewed by a SARS official concerning

the tax affairs of the person, if the interview:

Is intended to clarify issues of concern to SARS to render further verification or audit unnecessary; and

Is not for purposes of a criminal investigation.

The senior SARS official issuing the notice may require the person interviewed to produce relevant material

under the control of the person during the interview.

Relevant material required by SARS must be referred to in the notice with reasonable specificity.

A person may decline to attend an interview, if the distance between the place designated in the notice and the

usual place of business or residence of the person exceeds the distance prescribed by the Commissioner by

public notice.

FIELD AUDIT OR CRIMINAL INVESTIGATION

A SARS official may require a person, with prior notice of at least 10 business days, to make available at the

person‟s premises specified in the notice relevant material that the official may require to audit or criminally

investigate.

The notice must:

State the place where and the date and time that the audit or investigation is due to start (which must be

during normal business hours); and

Indicate the initial basis and scope of the audit or investigation.

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SARS is not required to give the notice if the person waives the right to receive the notice.

ASSISTANCE DURING FIELD AUDIT OR CRIMINAL INVESTIGATION

The person on whose premises an audit or criminal investigation is carried out must provide such reasonable

assistance:

Making available appropriate facilities, to the extent that such facilities are available;

Answering questions relating to the audit or investigation; and

Submitting relevant material.

No person may:

Obstruct a SARS official from carrying out the audit or investigation; or

Refuse to give the access or assistance.

The person may recover from SARS after completion of the audit (or, at the person‟s request, on a monthly

basis) the costs for the use of photocopying facilities in accordance with the fees prescribed in section 92(1)(b)

of the Promotion of Access to Information Act.

INQUIRIES

INQUIRY ORDER

A judge may grant an order for an inquiry if satisfied that there are reasonable grounds to believe that:

A person has:

○ Failed to comply with an obligation imposed under a tax Act; or

○ Committed a tax offence; and

Relevant material is likely to be revealed during the inquiry which may provide proof of the failure to

comply or of the commission of the offence.

The order must:

Designate a presiding officer before whom the inquiry is to be held;

Identify the person subject to the inquiry;

Refer to the alleged non-compliance or offence to be inquired into;

Be reasonably specific as to the ambit of the inquiry; and

Be provided to the presiding officer.

NOTICE TO APPEAR

The presiding officer may, by notice in writing, require a person, whether or not chargeable to tax, to:

Appear before the inquiry, at the time and place designated in the notice, for the purpose of being

examined under oath or solemn declaration, and

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Produce any relevant material in the custody of the person.

WITNESS FEES

The presiding officer may direct that a person receive witness fees to attend an inquiry in accordance with the

tariffs prescribed in terms of section 51bis of the Magistrates‟ Courts Act, 1944 (Act No. 32 of 1944).

CONFIDENTIALITY OF PROCEEDINGS

An inquiry is private and confidential.

The presiding officer may, on request, exclude a person from the inquiry if the person‟s attendance is prejudicial

to the inquiry.

SARS may use evidence given by a person under oath or solemn declaration at an inquiry in a subsequent

proceeding involving the person or another person.

INCRIMINATING EVIDENCE

A person may not refuse to answer a question during an inquiry on the grounds that it may incriminate the

person.

Incriminating evidence is not admissible in criminal proceedings against the person giving the evidence, unless

the proceedings relate to:

The administering or taking of an oath or the administering or making of a solemn declaration;

The giving of false evidence or the making of a false statement; or

The failure to answer questions lawfully put to the person, fully and satisfactorily.

SEARCH AND SEIZURE

APPLICATION FOR WARRANT

A senior SARS official may, authorise an application for a warrant under which SARS may enter premises where

relevant material is kept to search the premises and any person present on the premises and seize relevant

material.

SARS must apply ex parte to a judge for the warrant, which application must be supported by information

supplied under oath or solemn declaration, establishing the facts on which the application is based.

ISSUANCE OF WARRANT

A judge or magistrate may issue the warrant if satisfied that there are reasonable grounds to believe that:

A person failed to comply with an obligation imposed under a tax Act, or committed a tax offence; and

Relevant material likely to be found on the premises specified in the application may provide evidence of

the failure to comply or commission of the offence.

A warrant must contain the following:

The alleged failure to comply or offence that is the basis for the application;

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The person alleged to have failed to comply or to have committed the offence;

The premises to be searched; and

The fact that relevant material is likely to be found on the premises.

The warrant must be exercised within 45 business days or such further period as a judge or magistrate deems

appropriate on good cause shown.

CARRYING OUT SEARCH

A SARS official exercising a power under a warrant must produce the warrant.

A SARS official‟s failure to produce a warrant entitles a person to refuse access to the official.

The SARS official may:

Open or cause to be opened or removed in conducting a search, anything which the official suspects to

contain relevant material;

Seize any relevant material;

Seize and retain a computer or storage device in which relevant material is stored for as long as it is

necessary to copy the material required;

Make extracts from or copies of relevant material, and require from a person an explanation of relevant

material; and

If the premises listed in the warrant is a vessel, aircraft or vehicle, stop and board the vessel, aircraft or

vehicle, search the vessel, aircraft or vehicle or a person found in the vessel, aircraft or vehicle, and

question the person with respect to a matter dealt with in a tax Act.

The SARS official must make an inventory of the relevant material seized and provide a copy thereof to the

person.

The SARS official must conduct the search with strict regard for decency and order, and may search a person if

the official is of the same gender as the person being searched.

The SARS official may request such assistance from a police officer as the official may consider reasonably

necessary and the police officer must render the assistance.

No person may obstruct a SARS official, or a police officer, from executing the warrant or without reasonable

excuse refuse to give such assistance as may be reasonably required for the execution of the warrant.

If the SARS official seizes relevant material, the official must ensure that the relevant material seized is

preserved and retained until it is no longer required for:

The investigation into the non-compliance or the offence; or

The conclusion of any legal proceedings or criminal proceedings in which it is required to be used.

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SEARCH OF PREMISES NOT IDENTIFIED IN WARRANT

If a senior SARS official has reasonable grounds to believe that:

The relevant material referred is at premises not identified in the warrant and may be removed or

destroyed;

A warrant cannot be obtained in time to prevent the removal or destruction of the relevant material; and

The delay in obtaining a warrant would defeat the object of the search and seizure,

A SARS official may enter and search the premises, as if the premises had been identified in the

warrant.

A SARS official may not enter a dwelling-house or domestic premises, except any part thereof used for purposes

of trade, without the consent of the occupant.

SEARCH WITHOUT WARRANT

A senior SARS official may without a warrant search the premises:

If the owner or person in control of the premises so consents in writing; or

If the senior SARS official on reasonable grounds is satisfied that:

○ There may be an imminent removal or destruction of relevant material likely to be found on the

premises;

○ If SARS applies for a search warrant, a search warrant will be issued; and

○ The delay in obtaining a warrant would defeat the object of the search and seizure.

A SARS official must, before carrying out the search, inform the owner or person in control of the premises:

That the search is being conducted; and

Of the alleged failure to comply with an obligation imposed under a tax Act or tax offence that is the

basis for the search.

LEGAL PROFESSIONAL PRIVILEGE

If SARS foresees the need to search and seize relevant material that may be alleged to be subject to legal

professional privilege, SARS must arrange for an attorney from the panel to be present during the execution of

the warrant.

An attorney with whom SARS has made an arrangement may appoint a substitute attorney to be present on the

appointing attorney‟s behalf during the execution of a warrant.

If, during the carrying out of a search and seizure, a person alleges the existence of legal professional privilege

in respect of relevant material and an attorney is not present, SARS must seal the material, make arrangements

with an attorney from the panel to take receipt of the material and, as soon as is reasonably possible, hand over

the material to the attorney.

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An attorney:

Is not regarded as acting on behalf of either party; and

Must personally take responsibility:

○ In the case of a warrant issued, for the removal from the premises of relevant material in

respect of which legal privilege is alleged;

○ In the case of a search and seizure, for the receipt of the sealed information; and

○ If a substitute attorney, for the delivery of the information to the appointing attorney.

The attorney must within 21 business days make a determination of whether the privilege applies and may do so

in the manner the attorney deems fit, including considering representations made by the parties.

If a determination of whether the privilege applies is not made or a party is not satisfied with the determination,

the attorney must retain the relevant material pending final resolution of the dispute.

PERSON’S RIGHT TO EXAMINE AND MAKE COPIES

The person to whose affairs relevant material seized relates, may examine and copy it.

Examination and copying must be made:

At the person‟s cost in accordance with the fees prescribed in accordance with section 92(1)(b) of the

Promotion of Access to Information Act;

During normal business hours; and

Under the supervision determined by a senior SARS official.

APPLICATION FOR RETURN OF SEIZED RELEVANT MATERIAL OR COSTS OF DAMAGES

A person may request SARS to:

Return some or all of the seized material; and

Pay the costs of physical damage caused during the conduct of a search and seizure.

If SARS refuses the request, the person may apply to a High Court for the return of the seized material or

payment of compensation for physical damage caused during the conduct of the search and seizure.

The court may, on good cause shown, make the order as it deems fit.

If the court sets aside the warrant issued or orders the return of the seized material, the court may nevertheless

authorise SARS to retain the original or a copy of any relevant material in the interests of justice.

CONFIDENTIALITY OF INFORMATION

GENERAL PROHIBITION OF DISCLOSURE

This Chapter applies to:

SARS confidential information; and

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Taxpayer information, which means any information provided by a taxpayer or obtained by SARS in

respect of the taxpayer, including biometric information.

An oath or solemn declaration must be taken before a magistrate, justice of the peace or commissioner of oaths

by a SARS official and the Tax Ombud.

In the event of the disclosure of SARS confidential information or taxpayer information, the person to whom it

was so disclosed may not in any manner disclose, publish or make it known to any other person who is not a

SARS official.

The Commissioner may, for purposes of protecting the integrity and reputation of SARS as an organisation and

after giving the taxpayer at least 24 hours‟ notice, disclose taxpayer information to counter or rebut false

allegations or information disclosed by the taxpayer, the taxpayer‟s duly authorised representative or other

person acting under the instructions of the taxpayer and published in the media or in any other manner.

A person who is a SARS official or former SARS official may disclose SARS confidential information if:

The information is public information;

Authorised by the Commissioner;

Disclosure is authorised under any other Act which expressly provides for the disclosure of the

information despite the provisions in this Chapter;

Access has been granted for the disclosure of the information in terms of the Promotion of Access to

Information Act; or

Required by order of a High Court.

SECRECY OF TAXPAYER INFORMATION AND GENERAL DISCLOSURE

A person who is a current or former SARS official must preserve the secrecy of taxpayer information and may

not disclose taxpayer information to a person who is not a SARS official.

The Act does not prohibit the disclosure of information:

To the taxpayer; or

With the written consent of the taxpayer, to another person.

Biometric information of a taxpayer may not be disclosed by SARS.

The Commissioner may, publish:

The name and taxpayer reference number of a taxpayer; and

A list of approved public benefit organisations for the purposes of the provisions of sections 18A and 30 of

the Income Tax Act.

DISCLOSURE IN CRIMINAL, PUBLIC SAFETY OR ENVIRONMENTAL MATTERS

If so ordered by a judge, a senior SARS official must disclose the information to:

The National Commissioner of the South African Police Service;

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The National Director of Public Prosecutions.

The above disclosure applies to information which may reveal evidence:

That an offence (other than a tax offence) has been or may be committed in respect of which a court

may impose a sentence of imprisonment exceeding five years;

That may be relevant to the investigation or prosecution of the offence; or

Of an imminent and serious public safety or environmental risk.

SELF-INCRIMINATION

A taxpayer may not refuse to comply with his or her obligations in terms of legislation to complete and file a

return or an application on the grounds that to do so might incriminate him or her, and an admission by the

taxpayer contained in a return, application, or other document submitted to SARS by a taxpayer is admissible in

criminal proceedings against the taxpayer for a tax offence unless a competent court directs otherwise.

DISCLOSURE TO TAXPAYER OF OWN RECORD

A taxpayer or the taxpayer‟s duly authorised representative is entitled to obtain:

A copy, certified by SARS, of the recorded particulars of an assessment or decision;

Access to information submitted to SARS by the taxpayer or by a person on the taxpayer‟s behalf; and

Other information relating to the tax affairs of the taxpayer.

A request for the above information must be made under the Promotion of Access to Information Act.

The person requesting may be required to pay for the costs of copies in accordance with the Promotion of

Access to Information Act.

PUBLICATION OF NAMES OF OFFENDERS

The Commissioner may publish the particulars relating to a tax offence committed by a person, if:

The person was convicted of the offence; and

All appeal or review proceedings relating to the offence have been completed or were not instituted

within the period allowed.

The above publication may specify:

The name and area of residence of the offender;

Any particulars of the offence that the Commissioner thinks fit; and

The particulars of the fine or sentence imposed.

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ASSESSMENTS

ORIGINAL ASSESSMENTS

If a tax Act requires a taxpayer to submit a return which does not incorporate a determination of the amount of a

tax liability, SARS must make an original assessment based on the return submitted by the taxpayer or other

information available or obtained in respect of the taxpayer.

If a tax Act requires a taxpayer to submit a return which incorporates a determination of the amount of a tax

liability, the submission of the return is an original self-assessment of the tax liability.

If a tax Act requires a taxpayer to make a determination of the amount of a tax liability and no return is required,

the payment of the amount of tax due is an original assessment.

If a taxpayer does not or is not required to submit a return, SARS may make an assessment based on an

estimate.

ADDITIONAL ASSESSMENTS

If at any time SARS is satisfied that an assessment does not reflect the correct application of a tax Act to the

prejudice of SARS or the fiscus, SARS must make an additional assessment to correct the prejudice.

REDUCED ASSESSMENTS

SARS may make a reduced assessment if:

The taxpayer successfully disputed the assessment;

Necessary to give effect to a settlement;

Necessary to give effect to a judgment; or

SARS is satisfied that there is an error in the assessment as a result of an undisputed error.

JEOPARDY ASSESSMENTS

SARS may make a jeopardy assessment in advance of the date on which the return is normally due, if the

Commissioner is satisfied that it is required to secure the collection of tax that would otherwise be in jeopardy.

ESTIMATION OF ASSESSMENTS

SARS may make an original, additional, reduced or jeopardy assessment based in whole or in part on an

estimate if the taxpayer:

Fails to submit a return as required; or

Submits a return or information that is incorrect or inadequate.

SARS must make the estimate based on information readily available to it.

If the taxpayer is unable to submit an accurate return, a senior SARS official may agree in writing with the

taxpayer as to the amount of tax chargeable and issue an assessment accordingly, which assessment is not

subject to objection or appeal?

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NOTICE OF ASSESSMENT

SARS must issue a notice of the assessment stating:

The name of the taxpayer;

Reference number, or if one has not been allocated, any other form of identification;

Date of the assessment;

Amount of the assessment;

Tax period in relation to which the assessment is made;

Date for paying the amount assessed; and

Summary of the procedures for lodging an objection to the assessment.

WITHDRAWAL OF ASSESSMENTS

SARS may, despite the fact that no objection has been lodged or appeal noted, withdraw an assessment which:

Was issued to the incorrect taxpayer;

Was issued in respect of the incorrect tax period; or

Was issued as a result of an incorrect payment allocation.

PERIOD OF LIMITATIONS FOR ISSUANCE OF ASSESSMENTS

SARS may not make an assessment:

Three years after the date of assessment of an original assessment by SARS;

In all other cases five years.

The above limitation does not apply to the extent that:

In the case of assessment by SARS, the fact that the full amount of tax chargeable was not

assessed, was due to:

○ Fraud;

○ Misrepresentation; or

○ Non-disclosure of material facts.

In the case of self-assessment, the fact that the full amount of tax chargeable was not assessed,

was due to:

○ Fraud;

○ Intentional or negligent misrepresentation;

○ Intentional or negligent non-disclosure of material facts; or

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○ The failure to submit a return or, if no return is required, the failure to make the required

payment of tax.

TAX LIABILITY AND PAYMENT

REPRESENTATIVE TAXPAYER

A representative taxpayer means a person who is responsible for paying the tax liability of another person as an

agent, other than as a withholding agent, and includes a person who:

Is a representative taxpayer;

Is a representative employer;

Is a representative vendor.

Every person who becomes or ceases to be a representative taxpayer must notify SARS within 21 business

days.

A taxpayer is not relieved from any liability, responsibility or duty by reason of the fact that the taxpayer‟s

representative:

Failed to perform such responsibilities or duties; or

Is liable for the tax payable by the taxpayer.

LIABILITY OF REPRESENTATIVE TAXPAYER

A representative taxpayer is liable for the amount of tax specified by a tax Act.

A representative taxpayer may be assessed in respect of a tax specified by a tax Act, but such assessment is

regarded as made upon the representative taxpayer in such capacity only.

PERSONAL LIABILITY OF REPRESENTATIVE TAXPAYER

A representative taxpayer is personally liable for tax payable in the representative taxpayer‟s representative

capacity while it remains unpaid.

WITHHOLDING AGENT

Withholding agent means a person who must withhold an amount of tax and pay it to SARS.

PERSONAL LIABILITY OF WITHHOLDING AGENT

A withholding agent is personally liable for an amount of tax:

Withheld and not paid to SARS; or

Which should have been withheld under a tax Act but was not so withheld.

RESPONSIBLE THIRD PARTY

Responsible third party means a person who becomes otherwise liable for the tax liability of another person,

other than as a representative taxpayer or as a withholding agent, whether in a personal or representative

capacity.

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PERSONAL LIABILITY OF RESPONSIBLE THIRD PARTY

A responsible third party is personally liable.

RIGHT TO RECOVERY OF TAXPAYER

A representative taxpayer, withholding agent or responsible third party who pays a tax is entitled:

To recover the amount so paid from the person on whose behalf it is paid; or

To retain out of money or assets in that person‟s possession or that may come to that person in that

representative capacity, an amount equal to the amount so paid.

SECURITY BY TAXPAYER

A senior SARS official may require security from a taxpayer to safeguard the collection of tax by SARS, if the

taxpayer:

Is a representative taxpayer, withholding agent or responsible third party who was previously held liable in

the taxpayer‟s personal capacity under a tax Act;

Has been convicted of a tax offence;

Has frequently failed to pay amounts of tax due;

Has frequently failed to carry out other obligations imposed under any tax Act which constitutes non-

compliance.

If security is required, SARS must by written notice to the taxpayer require the taxpayer to furnish to or deposit

with SARS security for the payment of any tax which has or may become payable by the taxpayer.

The security must be of the nature, amount and form that the senior SARS official directs.

If the security is in the form of cash deposit and the taxpayer fails to make such deposit, it may:

Be collected as if it were a tax debt of the taxpayer recoverable under this Act; or

Be set-off against any refund due to the taxpayer.

A senior SARS official may, in the case of a taxpayer which is not a natural person and cannot provide the

security require of any or all of the members, shareholders or trustees who control or are involved in the

management of the taxpayer to enter into a contract of surety ship in respect of the taxpayer‟s liability for tax

which may arise from time to time.

DETERMINATION OF TIME AND MANNER OF PAYMENT OF TAX

Tax must be paid by the day and at the place notified by SARS and must be paid as a single amount or in terms

of an instalment payment agreement.

SARS may prescribe the method of payment of tax, including electronically.

A senior SARS official may, if there are reasonable grounds to believe that:

A taxpayer will not pay the full amount of tax;

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A taxpayer will dissipate the taxpayer‟s assets; or

That recovery may become difficult in the future, require the taxpayer to:

○ Pay the full amount immediately upon receipt of the notice of assessment or within the period as

the official deems appropriate; or

○ Provide such security as the official deems necessary.

PRESERVATION ORDER

A senior SARS official may authorise an ex parte application to the High Court for an order for the preservation

of any assets of a taxpayer or other person prohibiting any person from dealing in any manner with the assets to

which the order relates.

SARS may, in anticipation of the application and in order to prevent any realisable assets from being disposed of

or removed which may frustrate the collection of the full amount of tax due, seize the assets pending the

outcome of an application for a preservation order, which application must commence within 24 hours from the

time of seizure of the assets or the further period that SARS and the taxpayer or other person may agree on.

Until a preservation order is made in respect of the seized assets, SARS must take reasonable steps to preserve

and safeguard the assets.

A preservation order may be made if required to secure the collection of tax and in respect of:

Realisable assets seized by SARS;

The realisable assets as may be specified in the order and which are held by the person against

whom the preservation order is being made;

All realisable assets held by the person, whether it is specified in the order or not; or

All assets which, if transferred to the person after the making of the preservation order, would be

realisable assets.

If the taxpayer or other person has been absent for a period of 21 business days from his or her usual place of

residence or business within the Republic, the court may direct that it will be sufficient service of that notice or

rule if a copy thereof is affixed to or near the outer door of the building where the court sits and published in the

Gazette, unless the court directs some other mode of service.

In order to prevent any realisable assets that were not seized from being disposed of or removed contrary to a

preservation order, a senior SARS official may seize the assets if the official has reasonable grounds to believe

that the assets will be so disposed of or removed.

PAYMENT OF TAX PENDING OBJECTION OR APPEAL

Unless a senior SARS official otherwise directs:

The obligation to pay tax; and

The right of SARS to receive and recover tax, will not be suspended by an objection or appeal or

pending the decision of a court of law.

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A taxpayer may request a senior SARS official to suspend the payment of tax or a portion thereof due under an

assessment if the taxpayer intends to dispute or disputes the liability to pay that tax.

A senior SARS official may suspend payment of the disputed tax having regard to:

The compliance history of the taxpayer;

The amount of tax involved;

The risk of dissipation of assets by the taxpayer concerned during the period of suspension;

Whether the taxpayer is able to provide adequate security for the payment of the amount involved;

Whether payment of the amount involved would result in irreparable financial hardship to the

taxpayer;

Whether sequestration or liquidation proceedings are imminent;

Whether fraud is involved in the origin of the dispute; or

Whether the taxpayer has failed to furnish information requested under this Act for purposes of a

decision under this section.

TAXPAYER ACCOUNT AND ALLOCATION OF PAYMENTS

TAXPAYER ACCOUNT

SARS must maintain one or more taxpayer accounts for each taxpayer.

The taxpayer account must reflect the tax due in respect of each tax type included in the account.

The taxpayer account must record details for all tax periods of:

The tax owed;

Any penalty imposed;

The interest payable on outstanding amounts due;

Any other amount owed;

Tax payments made by or on behalf of the taxpayer; and

Any credit for amounts paid that the taxpayer is entitled to have set off against the taxpayer‟s tax

liability.

From time to time, or when requested by the taxpayer, SARS must send to the taxpayer a statement of account,

reflecting the amounts currently due and the details that SARS considers appropriate.

ALLOCATION OF PAYMENTS

SARS may allocate any payment made against the oldest amount of tax outstanding at the time of the payment,

other than amounts:

For which payment has been suspended; or

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That are payable in terms of an instalment payment agreement.

SARS may apply the first-in-first-out principle.

DEFERRAL OF PAYMENT

INSTALMENT PAYMENT AGREEMENT

A senior SARS official may enter into an agreement with a taxpayer under which the taxpayer is allowed to pay a

tax debt in one sum or in instalments.

SARS may terminate an instalment payment agreement if the taxpayer fails to pay an instalment or to otherwise

comply with its terms and a payment prior to the termination of the agreement must be regarded as part

payment of the tax debt.

CRITERIA FOR INSTALMENT PAYMENT AGREEMENT

A senior SARS official may enter into an instalment payment agreement only if:

The taxpayer suffers from a deficiency of assets or liquidity which is reasonably certain to be

remedied in the future;

The taxpayer anticipates income or other receipts which can be used to satisfy the tax debt;

Prospects of immediate collection activity are poor or uneconomical but are likely to improve in the

future;

Collection activity would be harsh in the particular case and the deferral or instalment agreement is

unlikely to prejudice tax collection; or

The taxpayer provides the security as may be required by the official.

RECOVERY OF TAX

DEBT DUE TO SARS

An amount of tax due or payable is a tax debt due to SARS for the benefit of the National Revenue Fund.

A tax debt due to SARS is recoverable by SARS, and is recoverable from:

In the case of a representative taxpayer who is not personally liable, any assets belonging to the

person represented which are in the representative taxpayer‟s possession or under his or her

management or control; or

In any other case, any assets of the taxpayer.

SARS need not recover an amount if the amount is less than R100 but the amount must be carried forward in

the relevant taxpayer account.

PERIOD OF LIMITATION ON COLLECTION OF TAX

Proceedings for recovery of a tax debt may not be initiated after the expiration of 15 years from the date the

assessment of tax.

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APPLICATION FOR CIVIL JUDGMENT FOR RECOVERY OF TAX

If a person fails to pay tax when it is payable, SARS may, after giving the person at least 10 business days

notice, file with the clerk or Registrar of a competent court a certified statement setting out the amount of tax

payable and certified by SARS as correct.

SARS may file the statement irrespective of whether or not the amount of tax is subject to an objection or

appeal, unless the obligation to pay the amount has been suspended.

SARS is not required to give the taxpayer prior notice if SARS is satisfied that giving notice would prejudice the

collection of the tax.

INSTITUTION OF SEQUESTRATION, LIQUIDATION OR WINDING-UP PROCEEDINGS

SARS may institute proceedings for the sequestration, liquidation or winding-up of a person for a tax debt.

SARS may institute the proceedings whether or not the person:

Is present in the Republic; or

Has an asset in the Republic.

If the tax debt is subject to an objection or appeal or a further appeal against a decision by the tax court, the

proceedings may only be instituted with leave of the court before which the proceedings are brought.

LIABILITY OF THIRD PARTY APPOINTED TO SATISFY TAX DEBTS

A senior SARS official may by notice to a person who holds or owes or will hold or owe any money, including a

pension, salary, wage or other remuneration, for or to a taxpayer, require the person to pay the money to SARS

in satisfaction of the taxpayer‟s tax debt.

A person that is unable to comply with a requirement of the notice, must advise the senior SARS official of the

reasons for the inability to comply within the period specified in the notice and the official may withdraw or

amend the notice as is appropriate under the circumstances.

A person receiving the notice must pay the money in accordance with the notice and, if the person parts with the

money contrary to the notice, the person is personally liable for the money.

SARS may, on request by a person affected by the notice, amend the notice to extend the period over which the

amount must be paid to SARS, to allow the taxpayer to pay the basic living expenses of the taxpayer and his or

her dependants.

LIABILITY OF FINANCIAL MANAGEMENT FOR TAX DEBTS

A person is personally liable for any tax debt of the taxpayer to the extent that the person‟s negligence or fraud

resulted in the failure to pay the tax debt if:

The person controls or is regularly involved in the management of the overall financial affairs of a

taxpayer; and

A senior SARS official is satisfied that the person is or was negligent or fraudulent in respect of the

payment of the tax debts of the taxpayer.

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LIABILITY OF SHAREHOLDERS FOR TAX DEBTS

This section applies where a company is wound up other than by means of an involuntary liquidation without

having satisfied its tax debt, including its liability as a responsible third party, withholding agent, or a

representative taxpayer, employer or vendor.

The persons who are shareholders of the company within one year prior to its winding up are jointly and

severally liable to pay the unpaid tax to the extent that:

They receive assets of the company in their capacity as shareholders within one year prior to its

winding-up; and

The tax debt existed at the time of the receipt of the assets or would have existed had the

company complied with its obligations under a tax Act.

The liability of the shareholders is secondary to the liability of the company.

Persons who are liable for tax of a company under this section may avail themselves of any rights against SARS

as would have been available to the company.

This section does not apply:

In respect of a „„listed company‟‟ within the meaning of the Income Tax Act; or

In respect of a shareholder of a listed company.

LIABILITY OF TRANSFEREE FOR TAX DEBTS

A person (referred to as a transferee) who receives an asset from a taxpayer who is a connected person in

relation to the transferee without consideration or for consideration below the fair market value of the asset is

liable for the tax debt of the taxpayer.

The liability is limited to the lesser of:

The tax debt that existed at the time of the receipt of the asset or would have existed had the

transferor complied with the transferor‟s obligations under a tax Act; and

The fair market value of the asset at the time of the transfer, reduced by the fair market value of

any consideration paid, at the time of payment.

The above applies only to an asset received by the transferee within one year before SARS notifies the

transferee of liability under this section.

LIABILITY OF PERSON ASSISTING IN DISSIPATION OF ASSETS

If a person knowingly assists in dissipating a taxpayer‟s assets in order to obstruct the collection of a tax debt of

the taxpayer, the person is jointly and severally liable with the taxpayer for the tax debt to the extent that the

person‟s assistance reduces the assets available to pay the taxpayer‟s tax debt.

COMPULSORY REPATRIATION OF FOREIGN ASSETS OF TAXPAYER

To collect a tax debt, a senior SARS official may apply for an order, if:

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The taxpayer concerned does not have sufficient assets located in the Republic to satisfy the tax debt in

full; and

The senior SARS official believes that the taxpayer:

○ Has assets outside the Republic; or

○ Has transferred assets outside the Republic for no consideration or for consideration less than

the fair market value which may fully or partly satisfy the tax debt.

A senior SARS official may apply to the High Court for an order compelling the taxpayer to repatriate assets

located outside the Republic within a period prescribed by the court in order to satisfy the tax debt.

In addition the court may:

Limit the taxpayer‟s right to travel outside the Republic and require the taxpayer to surrender his or her

passport to SARS;

Withdraw a taxpayer‟s authorisation to conduct business in the Republic, if applicable;

Require the taxpayer to cease trading; or

Issue any other order it deems fit.

INTEREST

GENERAL INTEREST RULES

Interest payable is calculated on the daily balance owing and compounded monthly.

The effective date for purposes of the calculation of interest in relation to:

Tax other than income tax or estate duty for any tax period, is the date by which tax for the tax period is

due and payable under a tax Act;

Income tax for any year of assessment, is the date falling seven months after the last day of that year in

the case of a taxpayer that has a year of assessment ending on the last day of February, and six months

in any other case;

Estate duty for any period, is the earlier of the date of assessment or 12 months after the date of death;

A fixed amount penalty is the date of assessment of the penalty, and in relation to an increment of the

penalty, the date of the increment.

A percentage based penalty, is the date by which tax for the tax period should have been paid; and

An understatement penalty is the effective date for the tax understated.

If a senior SARS official is satisfied that interest payable by a taxpayer is payable as a result of circumstances

beyond the taxpayer‟s control, the official may, unless prohibited by a tax Act, direct that so much of the interest

as is attributable to the circumstances is not payable by the taxpayer.

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The circumstances referred to above are limited to:

A natural or human-made disaster;

A civil disturbance or disruption in services; or

A serious illness or accident.

PERIOD OVER WHICH INTEREST ACCRUES

Interest payable is imposed for the period from the effective date of the tax to the date the tax is paid.

Interest on an amount refundable is calculated from the later of the effective date or the date that the excess was

received by SARS to the date the refunded tax is paid; and if a refund is offset against a liability of the taxpayer

the date on which the offset is effected is considered to be the date of payment of the refund.

RATE AT WHICH INTEREST IS CHARGED

The rate at which interest is payable is the prescribed rate.

In the case of interest payable with respect to refunds on assessment of provisional tax and employees‟ tax paid

for the relevant year of assessment, the rate payable by SARS is four percentage points below the prescribed

rate.

REFUNDS

REFUNDS OF EXCESS PAYMENTS

A person is entitled to a refund of:

An amount properly refundable under a tax Act and if so reflected in an assessment; or

The amount erroneously paid in respect of an assessment in excess of the amount payable in terms of the

assessment.

SARS need not authorise a refund until such time that verification, inspection or audit of the refund has been

finalised.

SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if

security in a form acceptable to a senior SARS official is provided by the taxpayer.

A person is entitled to a refund only if the refund is claimed by the person within three years, in the case of an

assessment by SARS, or five years, in the case of self-assessment, from the date of the assessment.

If SARS pays to a person by way of a refund any amount which is not properly payable to the person, the

amount is regarded as tax that is payable by the person to SARS from the date on which it is paid to the person.

A decision not to authorise a refund under this section is subject to objection and appeal.

REFUNDS SUBJECT TO SET-OFF AND DEFERRAL

If a taxpayer has an outstanding tax debt, an amount that is refundable, including interest thereon, must be

treated as a payment by the taxpayer that is recorded in the taxpayer‟s account, to the extent of the amount

outstanding, and any remaining amount must be set off against any outstanding debt.

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The above does not apply to a tax debt:

That is disputed or suspended; or

In respect of which an instalment payment agreement or a compromise applies.

An amount is not refundable if the amount is less than R100, but the amount must be carried forward in the

taxpayer account.

WRITE-OFF OR COMPROMISE OF TAX DEBTS

TEMPORARY WRITE OFF OF TAX DEBT

A senior SARS official may decide to temporarily „write off‟ an amount of tax debt if satisfied that the tax debt is

uneconomical to pursue.

A decision by the senior SARS official to temporarily „write off‟ an amount of tax debt does not absolve the

„debtor‟ from the liability for that tax debt.

A senior SARS official may at any time withdraw the decision to temporarily „write off‟ a tax debt if satisfied that

the tax debt is no longer uneconomical to pursue and that the decision to temporarily „write off‟ would jeopardise

the general tax collection effort.

TAX DEBT UNECONOMICAL TO PURSUE

A tax debt is uneconomical to pursue if a senior SARS official is satisfied that the total cost of recovery will in all

likelihood exceed the anticipated amount to be recovered.

In determining whether the cost of recovery is likely to exceed the anticipated amount a senior SARS official

must have regard to:

The amount of the tax debt;

The length of time that the tax debt has been outstanding;

The steps taken to date to recover the tax debt and the costs involved in those steps, including steps

taken to locate or trace the debtor;

The likely costs of continuing action to recover the tax debt and the anticipated return from that action,

including the likely recovery of costs that may be awarded to SARS;

The financial position of the debtor, including that debtor‟s assets and liabilities, cash flow, and possible

future income streams; and

Any other information available with regard to the recoverability of the tax debt.

PERMANENT WRITE OFF OF TAX DEBT

A senior SARS official may authorise the permanent „write off‟ of an amount of tax debt:

To the extent satisfied that the tax debt is irrecoverable at law; or

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If the debt is compromised.

SARS must notify the debtor in writing of the amount of tax debt „written off‟.

TAX DEBT IRRECOVERABLE AT LAW

A tax debt is irrecoverable at law if:

It cannot be recovered by action and judgment of a court; or

It is owed by a debtor that is in liquidation or sequestration and it represents the balance outstanding after

notice is given by the liquidator or trustee that no further dividend is to be paid or a final dividend has been

paid to the creditors of the estate; or

It is owed by a debtor that is subject to a business rescue plan.

A tax debt is not irrecoverable at law if SARS has not first explored action against or recovery from the personal

„assets‟ of the persons who may be liable for the debt.

PROCEDURE FOR WRITING OFF TAX DEBT

Before deciding to „write off‟ a tax debt, a senior SARS official must:

Determine whether there are any other tax debts owing to SARS by the debtor;

Reconcile amounts owed by and to the „debtor‟, including penalties, interest and costs;

Obtain a breakdown of the tax debt and the periods to which the outstanding amounts relate; and

Document the history of the recovery process and the reasons for deciding to „write off‟ the tax debt.

COMPROMISE OF TAX DEBT

A senior SARS official may authorise the „compromise‟ of a portion of a tax debt upon request by a „debtor‟ if:

The purpose of the „compromise‟ is to secure the highest net return from the recovery of the tax debt;

and

The „compromise‟ is consistent with considerations of good management of the tax system and

administrative efficiency.

REQUEST BY DEBTOR FOR COMPROMISE OF TAX DEBT

A request by a debtor for a tax debt to be „compromised‟ must be signed by the debtor and be supported by a

detailed statement setting out:

Assets and liabilities reflecting current fair market value;

Amounts received by or accrued to, and expenditure incurred during the 12 months immediately

preceding the request;

Assets which have been disposed of in the preceding three years, together with their value, the

consideration received or accrued, the identity of the person who acquired the assets and the

relationship between the debtor and the person who acquired the assets;

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Future interests in any assets whether certain or contingent or subject to the exercise of a discretionary

power by another person;

Assets‟ over which the debtor either alone or with other persons, has a direct or indirect power of

appointment or disposal, whether as trustee or otherwise;

Details of any connected person in relation to that debtor;

The debtor present sources and level of income and the anticipated sources and level of income for the

next three years, with an outline of the debtor‟s financial plans for the future; and

The debtor‟s reasons for seeking a compromise.

The request must be accompanied by the evidence supporting the debtor‟s claims for not being able to make

payment of the full amount of the tax debt.

The debtor must warrant that the information provided in the application is accurate and complete.

A senior SARS official may require that the application be supplemented by such further information as may be

required.

CIRCUMSTANCES WHERE NOT APPROPRIATE TO COMPROMISE TAX DEBT

A senior SARS official may not „compromise‟ any amount of a tax debt if:

The debtor was a party to an agreement with SARS to „compromise‟ an amount of tax debt within the

period of three years immediately before the request for the „compromise‟;

The tax affairs of the debtor (other than the outstanding tax debt) are not up to date;

Another creditor has communicated its intention to initiate or has initiated liquidation or sequestration

proceedings;

The „compromise‟ will prejudice other creditors;

It may adversely affect broader taxpayer compliance; or

The debtor is a company or a trust and SARS has not first explored action against or recovery from the

personal „assets‟ of the persons who may be liable for the debt.

PROCEDURE FOR COMPROMISE OF TAX DEBT

To „compromise‟ a tax debt, a senior SARS official and the debtor must sign an agreement setting out:

The amount payable by the debtor in full satisfaction of the debt;

The undertaking by SARS not to pursue recovery of the balance of the tax debt; and

The conditions subject to which the tax debt is „compromised‟ by SARS.

REGISTER OF TAX DEBTS WRITTEN OFF OR COMPROMISED

SARS must maintain a register of the tax debts „written off‟ or „compromised‟.

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ADMINISTRATIVE NON-COMPLIANCE PENALTIES

NON-COMPLIANCE SUBJECT TO PENALTY

If SARS is satisfied that non-compliance by a person exists, excluding the non-payment of tax, SARS must

impose the appropriate „penalty‟ in accordance with the penalty table.

Non-compliance is a failure to comply with an obligation that is imposed by or under a tax Act and is listed in a

public notice issued by the Commissioner, other than:

The failure to pay tax subject to a percentage based penalty; or

Non-compliance subject to an understatement penalty.

FIXED AMOUNT PENALTY TABLE

For the non-compliance, SARS must impose a „penalty‟ in accordance with the following table:

Table: Amount of Administrative Non-Compliance Penalty

The fixed amounts are to be imposed by SARS in accordance with the following table:

Item Assessed loss or taxable income for

preceding year of assessment

Penalty Maximum penalty

(i) Assessed loss R250 R8 750

(ii) R0 – R250 000 R250 R8 750

(iii) R250 001 – R500 000 R500 R17 500

(iv) R500 001 – R1 000 000 R1 000 R35 000

(v) R1 000 001 – R5 000 000 R2 000 R70 000

(vi) R5 000 001 – R10 000 000 R4 000 R140 000

(vii) R10 000 001- R50 000 000 R8 000 R280 000

(viii) R50 000 000 and above R16 000 R560 000

The amount of the „penalty‟ in column 3 will increase automatically by the same amount for each month, or part

thereof, that the person fails to remedy the non-compliance within one month after:

The date assessment of the penalty, if SARS is in possession of the current address of the person and is

able to deliver the assessment, but limited to 35 months after the date of assessment; or

The date of the non-compliance if SARS is not in possession of the current address of the person and is

unable to deliver the „penalty assessment‟, but limited to 47 months after the date of non-compliance.

The following persons, except those falling under item (viii) of the Table or those that did not trade during the

year of assessment, are treated as falling under item (vii) of the Table:

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A company listed on a recognised stock exchange;

A company whose gross receipts or accruals for the „preceding year‟ exceed R500 million;

A company that forms part of a „„group of companies‟‟ as defined in section 1 of the Income Tax Act ;or

A person or entity, exempt from income tax under the Income Tax Act but liable to tax under another tax

Act, whose gross receipts or accruals exceed R30 000 000 .

REPORTABLE ARRANGEMENT PENALTY

A „participant‟ who fails to disclose the information in respect of a reportable arrangement is liable to a „penalty‟,

for each month that the failure continues (up to 12 months), in the amount of:

R50 000, in the case of a „participant‟ other than the „promoter‟; or

R100 000, in the case of the „promoter‟.

The amount above is doubled if the amount of anticipated „tax benefit‟ for the „participant‟ by reason of the

arrangement exceeds R5 000 000, and is tripled if the benefit exceeds R10 000 000.

PERCENTAGE BASED PENALTY

IMPOSITION OF PERCENTAGE BASED PENALTY

If SARS is satisfied that an amount of tax was not paid, SARS must, in addition to any other „penalty‟ or interest

for which a person may be liable impose a „penalty‟ equal to the percentage of the amount of unpaid tax as

prescribed in the tax Act.

PROCEDURES FOR IMPOSING PENALTY

PENALTY ASSESSMENT

A „penalty‟ is imposed by way of a „penalty assessment‟, and if a „penalty assessment‟ is made, SARS must give

notice of the assessment , including the following:

The non-compliance in respect of which the „penalty‟ is assessed and its duration;

The amount of the „penalty‟ imposed;

The date for paying the „penalty‟;

The automatic increase of the „penalty‟; and

A summary of procedures for requesting remittance of the „penalty‟.

PAYMENT OF PENALTY

A „penalty‟ is due upon assessment and must be paid:

On or before the date for payment stated in the notice of the „penalty assessment‟; or

Where the „penalty assessment‟ is made together with an assessment of tax, on or before the deadline for

payment stated in the notice of the assessment for tax.

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PROCEDURE TO REQUEST REMITTANCE OF PENALTY

A person who is aggrieved by a „penalty assessment‟ notice may, on or before the date for payment in the

„penalty assessment‟ request SARS to remit the „penalty‟.

The „remittance request‟ must include:

A description of the circumstances which prevented the person from complying with the relevant

obligation; and

The supporting documents and information as may be required by SARS.

During the period commencing on the day that SARS receives the „remittance request‟, and ending 21 business

days after notice has been given of SARS‟ decision, no collection steps relating to the „penalty‟ amount may be

taken unless SARS has a reasonable belief that there is:

A risk of dissipation of assets by the person concerned; or

Fraud involved in the origin of the non-compliance or the grounds for remittance.

REMITTANCE OF PENALTY FOR FAILURE TO REGISTER

If a „penalty‟ is imposed on a person for a failure to register, SARS may remit the „penalty‟ in whole or in part if:

The failure to register was discovered because the person approached SARS voluntarily; and

The person has filed all returns required under a tax Act.

REMITTANCE OF PENALTY FOR NOMINAL OR FIRST INCIDENCE OF NON-COMPLIANCE

If a „penalty‟ has been imposed in respect of:

A first incidence of the non-compliance; or

An incidence of non-compliance under fixed amount penalties if the duration of the non-compliance is less

than five business days, SARS may, in respect of a fixed amount penalty, remit the „penalty‟, or a portion

thereof, up to an amount of R2 000 if SARS is satisfied that:

○ Reasonable grounds for the non-compliance exist; and

○ The non-compliance in issue has been remedied.

In the case of a reportable arrangement penalty, the limit for the penalty is R100 000.

In the case of a percentage based penalty SARS may remit the „penalty‟, or a portion thereof, if SARS is

satisfied that:

The „penalty‟ has been imposed in respect of a „first incidence‟ of the non-compliance or involved an

amount of less than R2 000;

Reasonable grounds for the non-compliance exist; and

The non-compliance in issue has been remedied.

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REMITTANCE OF PENALTY IN EXCEPTIONAL CIRCUMSTANCES

SARS must, upon receipt of a „remittance request‟, remit the „penalty‟ or if applicable a portion thereof, if SARS

is satisfied that one or more of the circumstances referred to below rendered the person incapable of complying

with the relevant obligation.

The circumstances are limited to:

A natural or human-made disaster;

A civil disturbance or disruption in services;

A serious illness or accident;

Serious emotional or mental distress;

Any of the following acts by SARS:

○ A capturing error;

○ A processing delay;

○ Provision of incorrect information in an official publication or media release issued by the

Commissioner;

○ Delay in providing information to any person; or

○ Failure by SARS to provide sufficient time for an adequate response to a request for information by

SARS;

○ Serious financial hardship, such as:

― In the case of an individual, lack of basic living requirements;

― In the case of a business, an immediate danger that the continuity of business operations

and the continued employment of its employees are jeopardised; or

Any other circumstance of analogous seriousness.

OBJECTION AND APPEAL AGAINST DECISION NOT TO REMIT PENALTY

A decision by SARS not to remit a „penalty‟ in whole or in part is subject to objection and appeal.

UNDERSTATEMENT PENALTY

SUBSTANTIAL UNDERSTATEMENT

A case where the prejudice to SARS exceeds the greater of five per cent of the amount of „tax‟ properly

chargeable or refundable, or R1 000 000.

UNDERSTATEMENT

Any prejudice to SARS as a result of:

A default in rendering a return;

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An omission from a return;

An incorrect statement in a return; or

If no return is required, the failure to pay the correct amount of „tax‟.

UNDERSTATEMENT PENALTY

In the event of an „understatement‟ by a taxpayer, the taxpayer must pay, in addition to the „tax‟ payable for the

relevant tax period, the understatement penalty.

The understatement penalty is the amount resulting from applying the highest applicable understatement penalty

percentage to the shortfall.

The shortfall is the sum of:

The difference between the amount of „tax‟ properly chargeable for the tax period and the amount of „tax‟

that would have been chargeable if the „understatement‟ were accepted;

The difference between the amount properly refundable for the tax period and the amount that would

have been refundable if the „understatement‟ were accepted; and

The difference between the amount of an assessed loss or any other benefit to the taxpayer properly

carried forward from the tax period to a succeeding tax period and the amount that would have been

carried forward if the „understatement‟ were accepted, multiplied by the tax rate.

UNDERSTATEMENT PENALTY TABLE

Item

2 Behaviour

3 Standard case

4 If obstructive,

or if it is a 'repeat case'

5 Voluntary

disclosure after notification of

audit

6 Voluntary disclosure

before notification of

audit

(i) 'Substantial

understatement'

25% 50% 5% 0%

(ii) Reasonable

care not taken in

completing

return

50% 75% 25% 0%

(iii) No reasonable

grounds for 'tax

position' taken

75% 100% 35% 0%

(iv) Gross

negligence

100% 125% 50% 5%

(v) Intentional tax

evasion

150% 200% 75% 10%

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SARS must remit a „penalty‟ imposed for a „substantial understatement‟ if SARS is satisfied that the taxpayer:

Made full disclosure of the arrangement that gave rise to the prejudice to SARS by no later than the date

that the relevant return was due; and

Was in possession of an opinion by a registered tax practitioner that:

○ Was issued by no later than the date that the relevant return was due;

○ Was based upon full disclosure of the specific facts and circumstances of the arrangement and,

in the case of any opinion regarding the applicability of the substance over form doctrine or the

anti-avoidance provisions of a tax Act, this requirement cannot be met unless the taxpayer is able

to demonstrate that all of the steps in or parts of the arrangement were fully disclosed to the tax

practitioner, whether or not the taxpayer was a direct party to the steps or parts in question; and

○ Confirmed that the taxpayer‟s position is more likely than not to be upheld if the matter proceeds

to court.

OBJECTION AND APPEAL AGAINST DECISION NOT TO REMIT UNDERSTATEMENT PENALTY

A decision by SARS not to remit an understatement penalty is subject to objection and appeal.

VOLUNTARY DISCLOSURE PROGRAMME

DEFAULT

The submission of inaccurate or incomplete information to SARS, or the failure to submit information or the

adoption of a „tax position‟, where such submission, non-submission, or adoption resulted in:

The taxpayer not being assessed for the correct amount of tax;

The correct amount of tax not being paid by the taxpayer; or

An incorrect refund being made by SARS.

QUALIFYING PERSON

A person may apply, whether in a personal, representative, withholding or other capacity, for voluntary

disclosure relief, unless that person is aware of:

A pending audit or investigation into the affairs of the person seeking relief; or

An audit or investigation that has commenced, but has not yet been concluded.

A person is deemed to be aware of a pending audit or investigation, or that the audit or investigation has

commenced, if:

A representative of the person;

An officer, shareholder or member of the person, if the person is a company;

A partner in partnership with the person;

A trustee or beneficiary of the person, if the person is a trust; or

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A person acting for or on behalf of or as an agent or fiduciary of the person, has become aware of a

pending audit or investigation, or that the audit or investigation has commenced.

REQUIREMENTS FOR VALID VOLUNTARY DISCLOSURE

The requirements for a valid voluntary disclosure are that the disclosure must:

Be voluntary;

Involve a „default‟ which has not previously been disclosed by the applicant;

Be full and complete in all material respects;

Involve the potential imposition of an understatement penalty in respect of the „default‟;

Not result in a refund due by SARS; and

Be made in the prescribed form and manner.

NO-NAME VOLUNTARY DISCLOSURE

A senior SARS official may issue a non-binding private opinion as to a person‟s eligibility for relief, if the person

provides sufficient information to do so, which information need not include the identity of any party to the

„default‟.

VOLUNTARY DISCLOSURE RELIEF

SARS must, pursuant to the making of a valid voluntary disclosure by the applicant and the conclusions of the

voluntary disclosure agreement:

Not pursue criminal prosecution for a tax offence arising from the „default‟;

Grant the relief in respect of any understatement penalty to the extent referred to in the understatement

penalty percentage table; and

Grant 100 per cent relief in respect of an administrative non-compliance penalty that was or may be

imposed.

VOLUNTARY DISCLOSURE AGREEMENT

The approval by a senior SARS official of a voluntary disclosure application and relief, must be evidenced by a

written agreement between SARS and the qualifying person who is liable for the outstanding tax in the

prescribed format and must include details on:

The material facts of the „default‟ on which the voluntary disclosure relief is based;

The amount payable by the person, which amount must separately reflect the understatement penalty

payable;

The arrangements and dates for payment; and

Relevant undertakings by the parties.

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WITHDRAWAL OF VOLUNTARY DISCLOSURE RELIEF

In the event that, subsequent to the conclusion of a voluntary disclosure agreement, it is established that the

applicant failed to disclose a matter that was material for purposes of making a valid voluntary disclosure, a

senior SARS official may:

Withdraw any relief granted;

Regard an amount paid in terms of the voluntary disclosure agreement to constitute part payment of any

further outstanding tax in respect of the relevant „default‟; and

Pursue criminal prosecution for a tax offence.

Any decision by the senior SARS official is subject to objection and appeal.

ASSESSMENT OR DETERMINATION TO GIVE EFFECT TO AGREEMENT

If a voluntary disclosure agreement has been concluded, SARS may issue an assessment or make a

determination for purposes of giving effect to the agreement.

An assessment issued or determination made to give effect to an agreement is not subject to objection and

appeal.

CRIMINAL OFFENCES

CRIMINAL OFFENCES RELATING TO NON-COMPLIANCE WITH TAX ACTS

A person who wilfully and without just cause:

Fails or neglects to register or notify SARS of a change in registered particulars;

Fails or neglects to appoint a representative taxpayer or notify SARS of the appointment or change of a

representative taxpayer;

Fails or neglects to register as a tax practitioner;

Fails or neglects to submit a return or document to SARS or issue a document to a person as required

under a tax Act;

Fails or neglects to retain records as required under this Act;

Submits a false certificate or statement;

Issues an erroneous, incomplete or false document required to be issued under a tax Act to another

person;

Refuses or neglects to:

○ Furnish, produce or make available any information, document or thing;

○ Reply to or answer truly and fully any questions put to the person by a SARS official;

○ Take an oath or make a solemn declaration; or

○ Attend and give evidence, as and when required in terms of this Act;

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○ Fails to comply with a directive or instruction issued by SARS to the person under a tax Act;

○ Fails or neglects to disclose to SARS any material facts which should have been disclosed under

this Act or to notify SARS of anything which the person is required to so notify SARS under a tax

Act;

○ Obstructs or hinders a SARS official in the discharge of the official‟s duties;

○ Refuses to give assistance;

○ Holds himself or herself out as a SARS official engaged in carrying out the provisions of this Act;

○ Fails or neglects to transfer assets or pay the amounts to SARS when requested by SARS; or

○ Dissipates that person‟s assets or assists another person to dissipate that other person‟s assets

in order to impede the collection of any taxes, penalties or interest, is guilty of an offence and,

upon conviction, is subject to a fine or to imprisonment for a period not exceeding two years.

CRIMINAL OFFENCES RELATING TO EVASION OF TAX

A person who with intent to evade or to assist another person to evade tax or to obtain an undue refund under a

tax Act:

Makes or causes or allows to be made any false statement or entry in a return or other document, or

signs a statement, return or other document so submitted without reasonable grounds for believing the

same to be true;

Gives a false answer, whether orally or in writing, to a request for information made under this Act;

Prepares, maintains or authorises the preparation or maintenance of false books of account or other

records or falsifies or authorises the falsification of books of account or other records;

Makes use of, or authorises the use of, fraud or contrivance; or

Makes any false statement for the purposes of obtaining any refund of or exemption from tax, is guilty of

an offence and, upon conviction, is subject to a fine or to imprisonment for a period not exceeding five

years.

CRIMINAL OFFENCES RELATING TO FILING RETURN WITHOUT AUTHORITY

A person who:

Submits a return or other document to SARS under a forged signature;

Uses an electronic or digital signature of another person in an electronic communication to SARS without

the person‟s consent and authority; or

Otherwise submits to SARS a communication on behalf of another person without the person‟s consent

and authority; is guilty of an offence and, upon conviction, is subject to a fine or to imprisonment for a

period not exceeding two years.

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REGISTRATION OF TAX PRACTITIONERS AND REPORTING OF

UNPROFESSIONAL CONDUCT

REGISTRATION OF TAX PRACTITIONERS

Every natural person who:

Provides advice to another person with respect to the application of a tax Act; or

Completes or assists in completing a return by another person,

Must register with:

○ A „recognised controlling body‟; and

○ With SARS as a tax practitioner within 21 business days after the date on which that person for the

first time provides the advice or completes or assists in completing the return.

The provisions of this section do not apply in respect of a person who:

Provides the advice or completes or assists in completing a return solely for no consideration to that

person or his or her employer or a connected person in relation to that employer or that person;

Provides the advice solely in anticipation of or in the course of any litigation to which the Commissioner

is a party or where the Commissioner is a complainant;

Provides the advice solely as an incidental or subordinate part of providing goods or other services to

another person;

Provides the advice or completes or assists in completing a return solely:

○ To or in respect of the employer by whom that person is employed on a full-time basis or to or in

respect of the employer and connected persons in relation to the employer; or

○ Under the direct supervision of a person who is a registered tax practitioner.

A person may not register as a tax practitioner if the person:

During the preceding five years has been removed from a related profession by a „controlling body‟ for

serious misconduct; or

During the preceding five years has been convicted (whether in the Republic or elsewhere) of:

○ Theft, fraud, forgery or uttering a forged document, perjury or an offence under the Prevention

and Combating of Corrupt Activities Act, 2004 (Act 12 of 2004); or

○ Any other offence involving dishonesty, for which the person has been sentenced to a period of

imprisonment exceeding two years without the option of a fine or to a fine exceeding the amount

prescribed in the Adjustment of Fines Act, 1991 (Act 101 of 1991).

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RECOGNITION OF CONTROLLING BODIES

The Commissioner must recognise as a „recognised controlling body‟:

The Independent Regulatory Board for Auditors;

The South African Legal Practice Council; and

A statutory body that the Minister is satisfied is similar to the bodies mentioned above and the details of

which are published in the Gazette.

The Commissioner may recognise a „controlling body‟ for natural persons providing advice with respect to the

application of a tax Act or completing returns as a „recognised controlling body‟ if the body:

Maintains relevant and effective:

○ Minimum qualification and experience requirements;

○ Continuing professional education requirements;

○ Codes of ethics and conduct; and

○ Disciplinary code and procedures;

Is approved in terms of section 30B of the Income Tax Act for purposes of section 10(1)(d)(iv) of the Act;

and

Has at least 1 000 members when applying for recognition or reasonable prospects of having 1 000

members within a year of applying.

COMPLAINT TO CONTROLLING BODY

A senior SARS official may lodge a complaint with a „controlling body‟ or person who carries on a profession

governed by the „controlling body‟, did or omitted to do anything with respect to the affairs of a taxpayer,

including that person‟s affairs, that in the opinion of the official:

Was intended to assist the taxpayer to avoid or unduly postpone the performance of an obligation imposed

on the taxpayer under a tax Act;

By reason of negligence on the part of the person resulted in the avoidance or undue postponement of the

performance of an obligation imposed on the taxpayer;

Constitutes a contravention of a rule or code of conduct for the profession which may result in disciplinary

action being taken against the „registered tax practitioner.

A senior SARS official may lodge a complaint with a „recognised controlling body‟ if a registered tax practitioner

has, in the opinion of the official:

Without exercising due diligence prepared or assisted in the preparation, approval or submission of any

return, affidavit or other document relating to matters affecting the application of any tax Act;

Unreasonably delayed the finalisation of any matter before SARS;

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Given an opinion contrary to clear law, recklessly or through gross incompetence, with regard to any

matter relating to a tax Act;

Been grossly negligent with regard to any work performed as a registered tax practitioner;

Knowingly given false or misleading information in connection with matters affecting the application of any

tax Act or participated in such activity; or

Directly or indirectly attempted to influence any person employed by SARS with regard to any matter

relating to any tax Act by the use of threats, false accusations, duress, or coercion, or by offering gifts,

favours, or any special inducements.

Before a complaint is lodged or information is disclosed, SARS must deliver to the taxpayer and the person

against whom the complaint is to be made notification of the intended complaint and information to be disclosed.

The taxpayer or that person may, within 21 business days after the date of the notification, lodge with SARS an

objection to the lodging of the complaint or disclosure of the information.

If on the expiry of that period of 21 business days no objection has been lodged or, if an objection has been

lodged and SARS is not satisfied that the objection should be sustained, a senior SARS official may thereupon

lodge the complaint.

COMPLAINT CONSIDERED BY CONTROLLING BODY

The complaint is to be considered by the „controlling body‟ according to its rules.

A hearing of the matter where details of a person‟s tax affairs will be disclosed, may be attended only by persons

whose attendance, in the opinion of the „controlling body‟, is necessary for the proper consideration of the

complaint.

The „controlling body‟ and its members must preserve secrecy in regard to the information as to the affairs of a

person as may be conveyed to them by SARS or as may otherwise come to their notice in the investigation of

the complaint and must not communicate the information to a person other than the person concerned or the

person against whom the complaint is lodged, unless the disclosure of the information is ordered by a competent

court of law.