What you need to know about exchange control regulations

Exchange controls are in essence, exactly as they sound. Governmental restrictions and regulations (controls) regarding the movements of national currency, goods, and services (exchange) in and out of the country.

They exist to prevent the loss of foreign currency resources, to control the movement of financial and real assets into and out of the country, and to prevent interference with the operation of the economic system. Exchange controls apply to any person who has taken up permanent residence and who is domiciled or registered in South Africa, and determine the amount of funds and assets that can be transferred abroad.

South African exchange controls

For the last two decades, South Africa’s exchange controls had gradually been relaxed, but recent changes from SARS have once again tightened regulations. On 24 April 2023, SARS unceremoniously announced regulations that greatly increased the administrative burden for individuals seeking to take their money offshore.

“SARS’ decision to tighten foreign exchange controls came as quite a surprise, not only to us but also to established authorised dealers,” said Sasha Mussett, Business Development Director at Safyr Utilis. “While the process to externalise funds amounting to R1 million remains much the same as before, transferring funds or assets above that amount has become more complicated and laborious.”

The move from SARS sees the introduction of a new Tax Compliance Status (TCS) application form which is part of an effort “to facilitate the consolidation of Foreign Investment Allowance (FIA) and Emigration applications into a single application – the ‘Approval for International Transfer’ (AIT).”

As before, any tax-paying South African resident over the age of 18 years is eligible to transfer up to R1 million as part of their single discretionary allowance (SDA) without TCS from SARS. However, individuals seeking to transfer sums above this will be considered “sophisticated taxpayers” and should therefore “reasonably have records of the cost prices of major assets they own”, and the full requirements are extensive.

AIT applicants must declare whether they are a “resident” or “non-resident” of South Africa. If they fall in the latter category a “non-resident confirmation letter” must be provided. Furthermore, they must disclose whether they are a beneficiary to any trust, hold any shares in companies, and have made any loans to trusts. It is also required that all world-wide assets are declared as well as their cost and the source of funds used to acquire them.

In addition to the above-mentioned criteria, the Financial Surveillance Department (FinSurv) of the South African Reserve Bank will consider applications beyond the limit on the condition that the investments are via foreign domiciled and registered trusts. If all conditions have been met, the FIA of R10 million may be used for offshore investments in portfolios, property, bank accounts, or other investments.

Exchange controls and externalising funds

Externalising funds can take many forms such as foreign investment, Krugerrands, and transfer of stocks. Each has its own regulations and restrictions. In all cases, all matters must be addressed through an Authorised Dealer, a registered bank authorised to deal in foreign exchange, or an Authorised Dealer in foreign exchange with limited authority. Management companies such as Safyr Utilis can assist with facilitating these processes.

Foreign investments in the form of an SDA or FIA have been covered above. The most important aspect to remember is that an FIA requires both a TCS and AIT application whereas an SDA requires neither.

Krugerrand coins up to the value of R30 000 may be exported as gifts for non-residents. The transfer requires completion of the prescribed SARS Customs Declaration.

South African residents may export locally owned, multi-listed securities to the foreign share exchange on condition that FinSurv is notified and all relevant rules are followed. This would fall under the FIA limit of R10 million. Because the transactions will not result in the actual flow of funds, specific conditions apply.

Loop structures have also become more accessible. In brief, loop structures allow investors to move the annual profits and capital growth of local assets overseas. If the decision is made to sell the asset, the proceeds go directly into the foreign structure, bypassing any further exchange control. Providing the share certificate is endorsed, no tax clearance is required, and fewer tax rules apply.

Exchange controls in Mauritius

Mauritius has no restrictions on currency and capital exchange. In 1994, the government of Mauritius abolished foreign exchange controls when it suspended the Foreign Exchange Control Act. For foreign investors, this means that no approval is required for the repatriation of profits, dividends, and capital gains. In addition, when transferring profits made in Mauritius or divesting assets in Mauritius and returning to South Africa, there are no legal obstacles.

Partnering with a Wealth Management Company

Many South Africans are still unaware of the options that are open to them, and they are not always sure where to go with their investments. “Many people don’t know where to invest their assets offshore because they don’t know who to trust offshore,” says Mussett. This is where a management company such as Safyr Utilis is needed. Based in Mauritius, we know the system extremely well and specialise in helping South Africans externalise their funds offshore. move their money offshore.

Once exchange controls are understood, a new world of investment opportunities opens up—especially when working with a qualified partner.

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