This blog was co-authored by: Kristin January, Candidate Attorney
On Wednesday 23 February 2022, the Minister of Finance presented his inaugural Budget Speech. The National Treasury confirmed its commitment to transformation of exchange control regulations with several new proposals:
- Individuals are permitted to export dual listed domestic securities to a foreign recognised exchange, subject to the allowance limitations, namely the R1 million annual single discretionary allowance and the R10 million foreign capital allowance.
- Residents may use their single discretionary allowance to participate in online foreign exchange trading, but may not use credit or debit cards to do so.
- Residents may receive and retain gifts from non-residents offshore – previously they were not permitted to retain these gifts offshore without Finsurv approval.
- Residents may lend or dispose of authorised foreign assets held offshore to other residents – this will however not apply retrospectively and past irregular transactions must be regularised.
- Residents may transfer more than R10 million per year to offshore trusts, subject to tax and reporting requirements.
- Authorised dealers may now, on a once-off basis, remit abroad the remaining cash balances (of up to R100,000 in total) of people who have ceased to be residents for tax purposes, without reference to the South African Revenue Service.
- Debt securities referencing foreign assets listed in a South African stock exchange will remain classified as foreign.
- Companies can apply to their authorised dealers for permission to invest up to ZAR 5 billion (previously ZAR 1 billion) in offshore assets, provided they comply with the standard foreign investment rules and annual reporting requirements.
- Excess income or profits of offshore branches and offices of South African firms may be retained offshore, subject to annual SARB reporting.
- South African companies can transfer to their domestic treasury management companies up to a maximum of R5 billion, an increase from R3 billion, per calendar year for listed entities, and up to R3 billion (an increase from R2 billion) per calendar year for unlisted companies. Funds transferred under this dispensation may be used for new investments, expansions and other transactions of a capital nature.
In February 2020 the Minister of Finance first announced that the National Treasury was embarking on a modernisation of the South African exchange control regime. This would be achieved by way of various relaxations to the existing exchange control regime.
One of these relaxations included the relaxation of the rules relating to ‘loop structures’. A loop structure arises where a South African exchange control resident (individual or company) has an interest in a foreign structure and that foreign structure directly or indirectly owns assets in the Common Monetary Area comprising of South Africa, Eswatini, Lesotho and Namibia. In terms of Exchange Control Circular No. 1/2021, the restrictions on loop structures pertaining to individuals, companies and private equity funds that are tax resident in South Africa were relaxed.
A further example of these 2021 relaxations was the removal of the distinction between emigrants and residents. As of 1 March 2021, South Africa’s Exchange Control regime no longer recognises the concept of “emigrant” or “emigration
It is two years since the Minister of Finance announced relaxations, in an effort to achieve a modernised system. It is hoped that this trend will continue and that these modernisations will promote welcome foreign direct investment into South Africa.