SOUTH AFRICA: Budget 2017 – Exchange Control Relaxations for Intellectual Property Transactions

Before the speech of the 2017 South African Budget, South African residents were prevented from selling, transferring or even assigning an IP to a non-resident without prior approval being obtained from the SA Treasure Bank, and obtaining such approval to export IP was not an easy task.

South Africa first introduced the Exchange Control in 1939. However, after that year, many efforts have been made in order to relax and simplify those regulations.

In the 2017 Budget, the National Treasury has amended the Exchange Control Regulations in order to bring IP transactions under its control.

It has made some changes to the Policy which might be considered as a change for the good by South African residents who create intellectual property (IP), and who wish to invest offshore. However, it must be emphasized that the relaxation only applies to private companies operating in the technology, media, telecommunications, exploration, and research and development sectors.

One of the main proposal was that companies and individuals would no longer need the Reserve Bank’s approval for standard intellectual property transactions. It is also proposed that the “loop structure” restriction for all intellectual property transactions be lifted, provided they are at arms-length and at a fair market price. Loop structure restrictions prohibit residents from holding any South African asset indirectly through a nonresident entity.

The above change along with the other changes proposed in the 2017 budget are welcomed, nevertheless it should be noted that several administrative requirements are yet to be met, and certain clarifications still need to be brought about.