Easing Exchange Controls - South Africa
The Current Process of Gradual Relaxation - It is stated policy of National Treasury and the South African Reserve Bank that exchange control should not be abolished overnight but that gradual relaxation should attend to any pent up demand over a period. Gradual relaxation, accordingly, means that a limit is firstly introduced and then gradually increased until it is possible to consider the abolishment of exchange control altogether.
The Single Discretionary Allowance
During February 2008, it was announced that, in order to streamline the administrative controls on individuals, a single discretionary allowance of R500 000 per individual per calendar year was introduced.
Natural persons resident in South Africa, who were over the age of 18 years, would be eligible for the single discretionary allowance without having to obtain a Tax Clearance Certificate.
The single discretionary allowance of R500 000 could be utilized for purposes of travel, gifts and loans to non-residents and South African residents temporarily abroad, maintenance as well as donations to missionaries.
While it was left up to the private individual to allocate the use of the R500 000 to the various purposes for which the single discretionary allowance could be utilized, once fully utilized the then Exchange Control Department of the South African Reserve Bank would not necessarily agree to additional funds being authorized to satisfy further requests under this dispensation.
During November 2011, the Financial Surveillance Department (the new name of the Exchange Control Department) increased the single discretionary allowance to R1 million per individual per calendar year.
In November 2011, the Financial Surveillance Department added two further categories to the purposes for which the R1 million single discretionary allowance could be utilized, being alimony and child support payments as well as wedding expenses and other special occasions.
Authorized Dealers in foreign exchange were now advised that, once the single discretionary allowance has been fully utilized for one or more purposes referred to above, the Financial Surveillance Department will be prepared to consider applications for additional funds on a case by case basis.
A clear trend is emerging of gradual relaxation of the single discretionary allowance, both as to its ambit and its amount. It would appear that further consolidation under the single discretionary allowance will form part of future gradual relaxation.
Foreign Capital Allowance
Private individuals resident in South Africa, who are 18 years and older, are currently permitted to exit up to a total amount of R4 million per calendar year for investment purposes abroad. A Tax Clearance Certificate is required, the production of a green ID Document as well as the completion of an Exchange Control form, Form MP 1423.
During December 2011, the Financial Surveillance Department extended the categories/purposes for which the R1 million single discretionary allowance may be utilized, by the inclusion of a reference to "foreign capital allowance".
In practice, this further consolidation of the single discretionary allowance means that private individuals resident in South Africa may now, without the necessity of producing a Tax Clearance Certificate, exit up to a further total amount of R1 million per calendar year for investment purpose abroad. Production of the green ID Document, a tax reference number and the completion of the Form MP 1423 will still be required.
This further amount of R1 million is, accordingly, over and above the foreign capital allowance of R4 million, referred to above. It should be noted that the R1 million facility is not available to South African residents temporarily abroad.
Foreign Direct Investments outside the Common Monetary Area by South African Companies
During October 2011, the Financial Surveillance Department announced that Authorized Dealers in foreign exchange may now consider and adjudicate upon applications not exceeding R500m by South African companies to make bona fide new outward foreign direct investments outside the Common Monetary Area where the proposed foreign investment is outside the current line of business of the applicant company. (The Common Monetary Area consists of South Africa, Lesotho, Namibia and Swaziland).
Authorized Dealers in foreign exchange may now also permit the transfer of additional working capital and/or further funding to enable the South African company to increase its approved equity interest and/or voting rights in a specific foreign target entity, provided that the additional funding is authorized within the same calendar year.
A major relaxation, relating to the policy regarding loop structures into the Common Monetary Area by South African companies with approved offshore investments, was also announced during October 2011. South African companies are now permitted to acquire from 10% to 20% equity and/or voting rights, whichever is the higher, in a foreign target entity which may hold investments and/or make loans into any Common Monetary Area country. This dispensation does not apply to foreign direct investments where the South African company holds or where companies collectively hold an equity interest and/or voting rights in excess of 20%.
Further Relaxations Announced
The Financial Surveillance Department announced that non-resident ownership restrictions in Authorized Dealers in foreign exchange with limited authority will be abolished and that money transfer operators will in future be regulated independently and that the current requirement for money operators to partner with existing Authorized Dealers in foreign exchange will not be obligatory.
In order to enhance the ability to attract new listings on the JSE Limited and boost investment into Africa, the Financial Surveillance Department also announced that all inward listed shares on the JSE Securities Exchange will be reclassified as domestic for purposes of trading on the exchange and will be included in its indices.
Increase in Limits
The Financial Surveillance Department, furthermore, announced between October 2011 and February 2012 the following increase in limits:
a) Advance payments for capital goods: from 33% to 50% of ex factory costs.
b) Importation and exportation of SARB bank notes: R10 000 to R25 000.
c) Omnibus business travel facility: R10m to R20m.
d) Cash floats for cost of transport of goods: R50 000 to R100 000.
e) Miscellaneous payments: R50 000 to R100 000.
f) Forward cover: Up to 75% of budgeted import commitments or export accruals may now be covered forward.
Considerable progress has been made by National Treasury with its gradual relaxation policy. It is hoped that these relaxations will have a positive effect on the confidence of local and foreign investors in South Africa as an investment destination.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.