Sage advice on administration of surety bonds

As we know, the
Commissioner for SA Revenue
Service requires security to be
furnished prior to registration
or licensing of certain business
activities with the Department
of Customs and Excise.
This security must be in
the form of a surety bond or a
provisional payment when this
option is allowed. Sars only
accepts surety bonds issued
by a South African-registered
bank or an insurer registered
with the Financial Services
Board for the purpose of
issuing guarantees.
A change in circumstances
may require a bond to
be cancelled. A notice of
cancellation by the client
or a notice of withdrawal
by the financial institution
must provide the following
information:
• the name of the principal;
• the type of activity secured;
• the bond number; and
• the office where the bond
is valid.
The surety bonds issued by
financial institutions usually
do not reflect the type of
security or the office where the
bond is valid. It is therefore the
responsibility of the principal
to ensure that a copy of the
confirmation letter issued by
Customs is attached to the
relevant surety bond. This
letter acknowledging that the
bond has been registered with
Customs should reflect the
information mentioned above.
These documents must
furthermore be stored in a
safe place, separate from
documents that are usually
destroyed after five years (the
statutory time period for which
documents need to be kept
according to the Customs and
Excise Act).
Failure to do so may result
in the documents being lost
or destroyed. This would
complicate a relatively simple
cancellation process and one
may even have to seek relief
from the courts to have the
bond/s cancelled.
Does your company have
surety bonds in place which
are no longer needed? Are
you aware of the fees that
your financial institution is
charging on these "obsolete"
bonds? Does your company
have a system in place that
provides for the easy tracking
of existing bonds, even though
these bonds may be 10 or 20
years old? Does your company
conscientiously notify Sars
if there is a change in the
name or legal identity of your
company, including details
of mergers or takeovers?
These are all issues that we
recommend you address.