Exchange Control

What is Exchange control?

 The main purpose of exchange control in South Africa is to:

• Prevent the loss of foreign currency resources through the transfer abroad of real or financial capital assets held in South Africa.
• and constitute an effective system of control over the movement into and out of South Africa of financial and real assets, whilst simultaneously avoiding interference with the efficient operation of the commercial, industrial and financial system of the country.

The National Treasury has delegated the administration of exchange control to the South African Reserve Bank (‘SARB’), which is responsible for the day to day administration and functioning of exchange control. The SARB has, in turn, delegated some of its powers to deal with exchange control matters to certain banks, which are known as ‘authorised dealers’ in foreign exchange. Source:www.reservebank.co.za

Exchange Control Rules for Individuals

1. South African residents may now invest R 4 million per calendar year abroad in terms of their foreign capital allowance in terms of Section B.2(B)(i) of the current Exchange Control Rulings, which requires them to complete a Form M.P.1423 in duplicate and produce a valid Tax Clearance Certificate (in respect of foreign investments) and their green bar-coded identity book. A person has to be over the age of 18 years. These investments may also be held in F.C. Accounts with Authorised Dealers. Authorised Dealers are advised that the green bar-coded South African Identity Document is the only acceptable document proving residency in the Republic.
2. In addition to the above, clients may now utilise their single discretionary allowance for investment purposes up to R 1 million per calendar year without having to produce a tax clearance certificate, but need to provide their income tax reference number when completing the necessary Form M.P.1423.
3. Prior to authorising the transaction, Authorised Dealers must ensure that a Form M.P.1423 is completed in duplicate and signed by the applicant, or a representative appointed in terms of either a special or general power of attorney, irrespective of the amount involved. The original Form M.P.1423 must be submitted to the Financial Surveillance Department on a daily basis via the Head Office of the Authorised Dealer. The Form M.P.1423 must only be completed in respect of foreign investments and for deposits to F.C. Accounts and not in respect of the repatriation of funds. A copy of the Form M.P.1423 and either the special or general power of attorney, where applicable, must be retained by the branch for a period of five years for inspection purposes.
4. A duly electronically completed “TAX CLEARANCE CERTIFICATE (IN RESPECT OF FOREIGN INVESTMENTS)” issued by SARS bearing the SARS logo and specific background watermark must be presented to the branch, prior to authorising the transaction. No transfer may be affected unless the Tax Clearance Certificate bearing the date is viewed. Authorised Dealers must ensure that the amount to be transferred does not exceed the amount reflected on the certificate. Since the Tax Clearance Certificate is specifically dated, such certificate may only be regarded as valid for a period of 12 months from the date reflected thereon.
   
   The format and content of the Tax Clearance Certificate is prescribed and no variation thereof, whatsoever, may be accepted. This certificate must be retained by the branch for a period of five years for inspection purposes.
   
   Private individuals who do not have any of the tax reference numbers referred to on the Form M.P.1423 will have to register at their local branch of SARS.
   
   Private individuals may not utilise funds in terms of the aforementioned dispensation or any other authorised foreign assets to enter into a transaction or a series of transactions to directly or indirectly acquire shares or some other interests in a CMA company or a CMA asset. Similarly, such funds may not be re-introduced as a loan to a CMA resident.
   
   Funds so transferred abroad may not be used to facilitate, directly or indirectly (through any structure) any investment or scheme of arrangement whereby any asset or facility of any nature is acquired in the CMA. The foreign capital allowance and the single discretionary allowance still need to be viewed as separate limits for individuals.
   

Source:www.reservebank.co.za

To access the Exchange Control manual on the SARB website click here.

Exchange Control for South African Companies

South African Companies do not qualify for a “foreign investment allowance”

Authorised Dealers may approve requests by mandated parastatals, as defined in Schedule 2 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) and companies wishing to make bona fide new outward foreign direct investments into companies, branches and offices outside the CMA, where the total cost of such investments does not exceed R500 million per company per calendar year.

The following criteria must be strictly applied by Authorised Dealers when considering these requests:

1. Parastatals may not use tax haven countries as a conduit for outward foreign direct investments elsewhere in the world. This moratorium is not applicable where the investment is made directly into a tax haven country;
2. at least 10 per cent of the foreign target entity’s voting rights must be obtained;
3. the proposed investment must be in the same line of business as that of the applicant company;
4. passive real estate investments are excluded from this dispensation; and
5. foreign currency denominated facilities may be extended by Authorised Dealers to South African companies for the financing of approved foreign direct investments.

Where Authorised Dealers are in doubt, such requests must be referred to the Financial Surveillance Department.

Other

Kindly note that the turnaround time of the exchange control process cannot be guaranteed as the process is conducted on a case by case basis and is dependent on the time required to obtain the necessary original tax clearance certificates. The onus lies with you to make sure that your tax documentation with the South African Revenue Service is up to date.

Should you require any information on exchange control, please contact one of our sales managers and they will assist you with the necessary documentation that is needed as well as the appropriate process that should be followed. Click here to view the exchange control manual on the SARB website.

Please note that the above Exchange Control is only applicable to South African citizens resident in South Africa. Please ensure that if you are resident in another country, you adhere to whatever Exchange Control regulations are in place.

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