SUBMISSION OF REPORTS TO THE FINANCIAL SURVEILLANCE DEPARTMENT OF THE SOUTH AFRICAN RESERVE BANK (SARB) RELATING TO THE ACQUISITION OF SOUTH AFRICAN ASSETS VIA OFFSHORE LOOP STRUCTURES.
In the Exchange Control Circular 1/2021 of the SARB, it is noted that the full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa.
South African resident individuals who have authorized / permissible foreign assets, may invest in South Africa provided that in situations where the investments are made through offshore structures (loop structures), those investments are reported via an Authorized Dealer to the Financial Surveillance Department of the SARB.
Upon completion of the transaction(s), the authorized dealer should compile and submit their report to the Financial Surveillance Department.
Information to be provided to the Financial Surveillance Department:
- Full details of the investment / loan made into South Africa including the following:
a) Description of the assets to be acquired (ie: loans, shares, property)
b) Name of the target investment company in South Africa (if applicable)
c) Date of the acquisition
d) Foreign currency amount
e) Transaction reference number - Date that the loan / investment was made.
- Source of funds used for the offshore investment:
a) Dates, amount and bank which facilitated the outward transfers for the Foreign Investment Allowance and Single Discretionary Allowance transfers.
b) If foreign earned income was used to fund the offshore investment, then details of your employment, dates and confirmation that you were physically abroad need to be provided. - Diagram of the full structure which shows the following:
a) Full names and domicile of each entity
b) Percentage shareholding
c) Details of the shareholders - If the structure includes a trust, then the also provide:
a) Full details of the funder
b) Copy of the trust deed
c) Full details of the beneficiaries - Written confirmation from an independent auditor or suitable documentary evidence to prove that the transactions were conducted at arm’s length and at a fair and market related price.
Terms and Conditions Applicable:
- Annual progress reports are to be submitted to the Financial Surveillance Department through an authorized dealer.
- Any unauthorized existing loop structures created prior to 01-01-2021 or those where the 40% shareholding threshold has been exceeded, still need to be regularized with Financial Surveillance Department.
- Foreign assets may not be placed at the disposal of another South African resident abroad, unless approved by the SARB.
- The information provided in the reports to the Financial Surveillance Department are for investment reporting purposes only and do not cover any tax considerations that may be applicable.
For full and updated information, please consult the Currency and Exchanges Manual for Authorized Dealers from the South African Reserve Bank.
We welcome the move to allow investment back into South Africa as in particular where individuals have simply left South Africa without formally emigrating this was a massive bar to investment, not unlike the UK res non dom rules which discouraged the wealthy to invest back into the UK
What is still not clear is the approach that will be taken with regularizing unauthorised loop structures and how penal the approach will be if at all.