Traversing South African Exchange Control

Below we take a quick look at Exchange Control measures in South Africa and how they impact individuals & businesses, both in South Africa & globally

 

A tale of two Rands

In the 1960’s, South Africa implemented the Blocked Rand system as a form of capital controls, in order to decrease the outflow of foreign exchange. In the late 1970’s, a proposed gradual easing of exchange controls saw the Blocked Rand system being replaced the Financial Rand. The Financial Rand system provided two exchange rates for the Rand – one was for resident transactions (money that stays within South Africa), and one for non-resident transactions (foreign investments in South Africa), which had limitations placed on its convertibility into foreign currencies. In 1995 the Financial Rand was abolished and the South African Rand (ZAR) became the official currency of South Africa. Many exchange controls, however, remain in place in South Africa today.

Exchange control measures are a good thing for an emerging market currency, which is why Brazil, Russia, India and China all have similar measures in place. Exchange control policy in South Africa favours inward flows and places greater restrictions on funds flowing out South Africa. This provides some currency protection in times of crisis.

 

How individuals are impacted by exchange controls:

Below we see the gradual easing of exchange control, as it pertains to individuals, over the past 2 decades. As you can see both discretionary & capital allowances have been relaxed and now permits South African individuals to send up to R11 million out the country each year, provided documentation is in order. Non-residents have no limits on the movement of funds so long as they can provide the required documentary evidence required by the SARB.

  • South African individuals –  Discretionary foreign investment allowance: R1 million per annum.
  • South African individuals – Capital foreign investment allowance: R10 million per annum & tax clearance certificate required.
  • Non-residents investments – may freely invest in South Africa, as long as the suitable documentary evidence is provided.
  • Non-resident disinvestments – the full value of the local sale is freely transferable.

 

 How businesses are impacted by exchange controls:

  • South African registered private, public and listed companies may invest up to R1 billion offshore per year, with larger payments requiring approval from the SARB
  • Importers and Exporters are required to satisfy SARB requirements when making or receiving payments from abroad.
  • South African institutional investors limit on foreign portfolio investments may not exceed 30% – 40% of total retail assets, depending on the nature of the investment company or product.
  • The “African allowance” allows for an additional 10% of total retail assets under management to be invested in the rest of Africa.

The above lists only a few relevant examples. Further industry-specific requirements will also need to be met should a South African entity wish to send or receive funds internationally. This is outlined in the Currency & Exchange guidelines for business entities manual issued by the SARB.

 

What does the SARB say about business entities holding foreign currency abroad?

“Foreign currency may not be retained abroad unless specific approval is obtained from the Financial Surveillance
Department or as provided for in the Authorised Dealers Manual. A serious view will be taken by the Financial Surveillance Department of any unauthorised retention of foreign currency balances, whether with foreign banks, overseas principals, agents or shippers.”

 

Transactions with Common Monetary Area residents

There are no foreign exchange restrictions between banks of the Common Monetary Area (CMA) member countries in respect of cross-border transactions amongst themselves. Lesotho, Namibia and Swaziland have their own monetary authorities and legislation. The application of exchange control within the CMA is governed by the Multilateral Monetary Agreement. Investments and transfers of funds in Rand from/to South Africa to/from other CMA countries do not require the approval of the Financial Surveillance Department.

 

Businesses in the following industries need to consider exchange controls that may apply to them:

If your business makes or receives international payments to or from South Africa, and is included in one of the below industries, it is important that you are fully aware of the exchange control requirements.

 

TechnologyMediaResearch & Development
InsuranceComputer SoftwareShipping
Private EquityTourism & TravelImport & Export
RoyaltiesMembershipsDebit & Credit cards payments

How we can assist

Exchange Control may appear to be daunting upon first glance, however, it need not be. The purpose of exchange control regulations are to manage & monitor the inflow and outflow of capital in South Africa, not to restrict it. This is done by submitting a balance of payments (BOP) form to the SARB for each and every payment that enters or leaves South Africa’s borders, regardless of currency.

Following incorrect exchange control procedure could result in your funds being delayed, blocked or penalised, for this reason, the Rand Review has partnered with multiple South African banks & forex intermediaries who specialize in South African exchange control advice and guidance. Should you have any questions, please feel free to complete the form below, and we will put you in touch with the right partner.

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