For as long as we can remember exchange control has been part of every South African’s life. For years they were told that contravening these was a dire crime worthy of draconian punishment and perpetrating severe economic consequences on the South African economy. Now apparently, it is the controls themselves that are the problem! We concur with this view as a major inhibitor of investment into South Africa and a huge encouragement to South African’s to remit funds out of the country. We therefore welcome the proposed relaxation of these controls as announced in this years budget.
The budget has proposed a few specific relaxations in the controls. The most important generic change is that the system will change from one where everything is prohibited unless allowed to one where everything is allowed unless prohibited. That change is potentially fundamental unless the list of what is not allowed is too comprehensive to revert to the status quo.
What are the specifics mentioned?
- Exports of IP to non-related parties will be allowed without approval. Exports to related parties will still require approval.
- “Loop” structure prohibition will remain in place until certain tax measures are introduced at which point, they will be reassessed. It is noted that the policy was already relaxed to a degree in October 2019.
- South African corporates will require approval if they shift their primary domicile offshore.
- The concept of “financial emigration” will be phased out by 1 March 2021. This is to be replaced by a verification process on legitimacy of source of funds, tax compliance etc. Given that this already occurs for emigration, one wonders what is envisaged here.
- In the future emigrants will be treated the same as residents. There will no longer be a “blocked” account and emigrants may borrow similarly to residents.
- Transfers abroad of more than the R10m will be subject to the same “verification” process.
- As emigrants will no longer financially emigrate the withdrawal of pension and
provident fund rules relying on that trigger will have to be reviewed.
Strategies to consider:
Despite the new rules being announced in the budget the old rules still apply and this needs to
be considered whilst planning. South African residents and emigrants have been out of step
with the rest of the developed world for years as their strategies were constrained by artificial
We have now developed a few strategies to consider and suggest you contact your Osiris rep
to discuss these options over the months to come.