Exchange control in South Africa
All money transferred in and out of South Africa is controlled and regulated by the South African Reserve Bank (SARB) who is responsible for the day-to-day administration of exchange control.
How does exchange control in South Africa affect me?
The South African exchange control regulations dictate how much, and under what circumstances money can be transferred offshore. It’s important to remember that the exchange control regulations apply to South African residents, meaning any person (i.e. a natural person or legal entity) who has taken up permanent residence, is domiciled or registered in South Africa. Therefore, if you as an individual or an entity like a corporate is considered a resident for exchange control purposes, the rules are applicable.
If you have not recorded a financial emigration with the South African Reserve Bank or ceased your South African tax residency and you live overseas, you will still be regarded as a South African resident for exchange control purposes.
South African residents living abroad can make use of various allowances, even if they have not formalised their emigration. They may use the R1 million single discretionary allowance and the R10 million foreign capital allowance per calendar year without returning to South Africa.
South African residents leaving South Africa may also export household and personal effects, motor vehicles, caravans, trailers, motorcycles, stamps and coins (excluding coins that are legal tender in South Africa) to the value of R1 million (insurance value) under the prescribed South African Revenue Service Customs Declaration.
In addition to the above, if you receive any income from pensions and/or retirement annuities, excluding lump-sum payments, these may also be transferred abroad.
South Africans who have or are in the process of completing their financial / tax emigration from South Africa, may avail of the following allowances:
Foreign Capital Allowance (cash)
South Africans who are 18 years and older and have already completed or are in the process of completing their financial / tax emigration from South Africa, may transfer a foreign capital allowance of R10 million per private individual per calendar year provided the individual is in possession of a Tax Compliance Status PIN issued by the South African Revenue Service.
Export of listed/ unlisted shares in lieu of cash
Should some of the emigrant’s assets consist of listed and/or unlisted shares, the individual can also externalise shares without having to sell. The export of listed and/or unlisted shares will be treated similar to cash and may be taken in lieu of the foreign capital allowance.
The advantages of externalising shares:
- Listed shares – retain shares and sell when the share price is more favourable.
- Unlisted shares – retaining shares gives more time to source a buyer at a market-related price, i.e. no forced sales.
- Minimise exposure to currency fluctuations during periods of currency volatility.
To externalise shares at emigration from South Africa, the shares will need to be endorsed ‘non-resident’ by an Authorised Dealer (i.e. a local commercial bank).
The export of unlisted shares will be granted subject to the condition that the company is not re-domiciled and shall remain a South African tax resident.
Special Allowance (cash and/or listed/ unlisted shares in lieu of cash)
To transfer money out of South Africa in excess of the limits, a special application will have to be made to the South African Reserve Bank (SARB) which application must be supported by a Tax Compliance Status PIN from the South African Revenue Service.
Capital and/or income transfers from an inter vivos trust
If you are a South African resident living or planning to live overseas (recording a financial / tax emigration) and a beneficiary of a trust, capital and/or income distributions will be eligible for transfer abroad by way of the annual exchange control allowances available to private individuals.
Artwork owned by an emigrant may be exported as part of his/her household and personal effects up to an insured value of R1 million.
The export of artwork in excess of the R1 million limit would require a special application to be submitted to the South African Reserve Bank (SARB). A valuation of the artwork, whether within or above the limit, will have to accompany your request. Details of when and how the artwork was acquired must also be provided.
Should the artwork be older than 50 years, approval from the South African Heritage Resources Agency (SAHRA) must be obtained prior to the export of the artwork. SAHRA is a statutory organisation established under the National Heritage Resources Act (25 of 1999), as the national administrative body responsible for the protection of South Africa’s cultural heritage.
Artwork is treated as a personal-use asset for tax purposes in terms of the Income Tax Act (58 of 1962) and is therefore exempt from capital gains tax (CGT) if the same is owned by an individual (not an art dealer). However, if the artwork was distributed to an emigrant from an inter vivos trust, the same will be subject to CGT, despite the fact that it is exempt from CTG in the hands of the individual. Similarly, if the artwork is owned by a company, the artwork will not be exempt from CGT.
South Africans who want to study overseas, may use their single discretionary allowance of R1 million. Similarly, a spouse accompanying the student overseas may also be accorded a single discretionary allowance of R1 million per calendar year.
In addition to the above, tuition and academic fees may be transferred abroad.
Students under the age of 18 years qualify only for a study allowance to pay for costs associated with their studies abroad, as well as a travel allowance of R200 000 per calendar year.
A non-resident is a person (i.e. a natural person or legal entity) whose normal place of residence, domicile or registration is outside the Common Monetary Area (i.e Lesotho, Swaziland, Namibia and South Africa).
Exchange controls over non-residents have been abolished and non-residents can invest in South Africa without restriction. The sale proceeds of non-resident acquired investments/assets are also freely transferable abroad provided the investment/asset was acquired at an arm’s length basis and at a fair and market-related price.
Income due to non-residents is normally also freely transferable.
Although no exchange controls exist over non-residents, there are still certain requirements that must be adhered to when a non-resident wishes to repatriate the sale proceeds of an investment/asset or when they want to transfer income earned on their South African assets abroad.
It is always good practice to obtain advice prior to entering into transactions to ensure adherence to the exchange control rules and regulations.
Corporates may transfer funds abroad in respect of any number of payments to non-residents as specifically mentioned in the Currency and Exchanges Manual for Authorised Dealers – as long as the necessary documentary evidence is provided, confirming the amount and nature of the payment.
In addition, various other payments may be made by corporates to non-residents up to an amount of R100 000 in respect of payments not specifically mentioned in the Currency and Exchanges Manual, provided suitable documentary evidence are provided substantiating the amount and nature of the liability.
We can assist with travel facilities of up to R20 million per calendar year to corporates for allocation to employees who make regular trips overseas.
Corporates who have various employees travelling on their behalf for business purposes may apply to avail of an omnibus travel allowance of up to R20 million per calendar year. An omnibus allowance is a company travel allowance to be utilised by nominated employees for foreign travel purposes. The omnibus business travel allowance would enable corporates to plan ahead for their foreign business travel requirements for a specific calendar year.
Staff members of entities availing of an omnibus travel facility also qualify in their personal capacity for a travel allowance within the single discretionary allowance limit of R1 million per calendar year. The omnibus facility thus used by an employee will not affect his/her annual travel allowance allocation of R1 million.
The omnibus travel facility may only be used for business travel purposes and may not be deposited into any foreign bank account or be used to acquire goods and/or services abroad.
Individuals and corporates may avail of foreign loans from non-resident parties, subject to approval being obtained from an Authorised Dealer in South Africa (i.e. a local commercial bank).
The following criteria must be adhered to in respect of the loans:
- The loan must be at least for a period of 1 month;
- The interest rate in respect of a third party foreign-denominated loan may not exceed the base lending rate plus 3% or, in the case of shareholder’s loan, the base lending rate as determined by commercial banks in the country of denomination;
- The interest rate in respect of a Rand denominated loan may not exceed the base rate (the prime rate) plus 5% on a third-party loan or the base rate, in the case of shareholder’s loan;
- The loan funds to be introduced may not represent or be sourced from a South African resident’s foreign capital allowance, legitimate foreign assets, legitimate foreign earnings retained abroad, funds for which amnesty had been granted in terms of the Exchange Control Amnesty and Amendment of Taxation Laws Act (12 of 2003) and/or foreign inheritances;
- There may not be any direct/indirect South African interest whatsoever in the foreign lender;
- The loan funds may not be invested into foreign sinking funds;
- No upfront payment of commitment fees, raising fees and/or any other administration fees are payable by the borrower; and
- The above fees may only be paid from South Africa once the loan funds have been received and converted into Rand locally provided that such fees do not exceed 5% of the principal sum.
Loop structures are created when South African residents enter into a transaction or series of transactions, including the resident forming an offshore structure, which – by re-investment into South Africa – acquires shares or some other interest, either in a South African resident company or a South African asset.
With effect from 1 January 2021, South African resident individuals may use their authorised foreign assets to re-invest in any form, into South Africa). South African assets that are acquired through an offshore loop structure, must be reported to an Authorised Dealer (i.e. a local commercial bank) as and when the transaction(s) is finalised.
Upon completion of the transaction the Authorised Dealer must submit a report to the Financial Surveillance Department of the South African Reserve Bank which should, inter alia, include the name(s) of the South African affiliated foreign investor(s), a description of the assets to be acquired (including inward foreign loans, the acquisition of shares and the acquisition of property), the name of the South African target investment company, if applicable and the date of the acquisition as well as the actual foreign currency amount introduced including a transaction reference number.
An independent auditor’s written confirmation or suitable documentary evidence verifying that such transaction(s) is concluded on an arm’s length basis, for a fair and market related price will have to be provided.
An annual progress report must be submitted to the Financial Surveillance Department via an Authorised Dealer.
Authorised foreign assets include:
- Foreign Capital Allowance
- Retained income earned abroad subsequent to 1997-07-01
- Foreign inheritances/legacies subsequent to 1998-03-17
- Exemptions granted in terms of Exchange Control Circular No. D405 dated 2003-09-30
- Amnesty funds approved whereby a levy of 10% was paid to retain the assets abroad
- Regularised foreign assets (post amnesty)
Existing unauthorised loop structures (i.e. created by individuals prior to 1 January 2021) and/or unauthorised loop structures where the 40 per cent shareholding threshold was exceeded, must still be regularised with the Financial Surveillance Department of the South African Reserve Bank.
A breach of the regulations can result in financial penalties being imposed by the Reserve Bank.
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